Serdar ERKILIÇ

Central Bank of the Republic of TurkeyStatistics Department / Balance of Payments Division

Joint NBRM & ECB Seminar on Statistics2-5 October 2013, Skopje

Measuring the Real Effective Exchange Rate Experience of Turkey

Contents

References

Real Effective Exchange Rate Methodology

Turkey’s REER (2003-2013)

References

Saygılı, H., Saygılı, M. and Yılmaz, G. (2010). Türkiye için Yeni Reel Efektif Döviz Kuru Endeksleri (New Real Effective Exchange Rate Indexes for Turkey). CBT Working Paper No: 10/12. http://www.tcmb.gov.tr/research/discus/2010/WP1012.pdf

Saygılı, H., Saygılı, M. and Yılmaz, G. (2010). Yeni Endekslerle 2003-2010 Dönemi Reel Efektif Döviz Kuru Gelişmelerine İlişkin Gözlemler (Observations with New Indexes on 2003-2010 Period Real Effective Exchange Rate Developments). Research Notes in Economics, CBT, Ankara.

Yılmaz, G. and Gönenç, R. (2008). How did the Turkish Industry Respond to Increased Competitive Pressures, 1998-2007? Working Paper, CBT, Ankara.

Saygılı, M., Şahinbeyoğlu G. and Özbay, P. (1998). Competitiveness Indicators and the Equilibrium Real Exchange Rate Dynamics in Turkey", in Macroeconomic Analysis of Turkey: Essays on Current Issues. Working Paper, CBT, Ankara.

Kıpıcı, A.N. and Kesriyeli , M. (1997). Reel Döviz Kuru Tanımları ve Hesaplama Yöntemleri (Real Exchange Rate Definitions and Calculation Methods). Working Paper, CBT, Ankara.

Methodology-1

REER released by the Central Bank of Turkey (CBT), is computed as the weighted geometric average of the prices in Turkey relative to the prices of its principal trade partners in international markets. The real effective exchange rate can be formulated as follows:

where, wi, is country i’s weight in Turkey’s REER index

PTUR, is the price index in Turkey

Pi, is the price index in country i

ei,TUR, is the nominal exchange rate of country i in terms of Turkish Lira (TL)

N, is the number of countries included in the analysis

∏𝑖=1

𝑁

[ 𝑃 𝑇𝑈𝑅𝑃𝑖∗𝑒𝑖 ,𝑇𝑈𝑅

]𝑤𝑖

Methodology-2

Data sources are as follows:• CPI and PPI

o CBT Electronic Data Delivery System (CBT EDDS)o International Financial Statistics (IMF IFS)o For Taiwan CPI data, International Labor Organization database

• Exchange Rates (monthly averages of nominal exchange rates)o CBT EDDS o IMF IFS (For pre-April 2009, IMF IFS database is used for Czech Republic, Poland,

Hungary, Bulgaria, Romania, Malaysia, Russia, Kazakhstan, Thailand, Iran, China, Indonesia, Egypt and India. Figures are converted to TL).

o Oanda (www.oanda.com) (For Taiwan dollar exchange rates, figures are converted to TL)

o Eurostat (For Pre-2001 Greece and pre-2009 Slovak Republic generic euro rates)

Methodology-3

• Unit Labor Cost indexes (seasonally adjusted) (*)o OECD Olisnet

• Bilateral Trade (SITC 5-8)o UN Comtrade o Taiwan Bureau of Foreign Trade (**) (http://cus93.trade.gov.tw/ENGLISH/FSCE/)

• GDP and Manufacturing Productiono World Bank Development Indicators o OECD Olisnet (For countries not available on World Bank database)o Taiwan Council for Economic Planning and Development (

http://www.cepd.gov.tw)

(*) Data for Turkey is available on OECD Olisnet until 2006. For later periods, quarterly “Manufacturing Production Index” from CBT EDDS and “Manufacturing Industry Gross Wage Index” from Turkish Statistics (TURKSTAT) are used to extend the ULC series. “Nominal Unit Wage” is calculated by dividing the production index by the wage index. To be compatible with OECD data, seasonallyadjusted ULC index for the post first quarter of 2007 is expanded by using the year on year increase in the generated nominal unit wage index.

(**) Bilateral aggregate exports and imports data are available. The ratio of manufacturing trade is determined by using World Trade Organization database.

Countries’s Weight in Turkey’s CPI and PPI Based REER

Source: UN COMTRADENote: 2009 IMF classification is used for grouping 36 countries according to their development level.

CPI Weight (%) PPI Weight (%)Germany 16,36 Germany 19,78China 10,91 Italy 9,72Italy 8,04 USA 8,71USA 7,21 France 8,41France 6,95 England 6,54England 5,41 Spain 4,96Spain 4,10 Belgium 4,48Russia 3,85 Netherlands 4,38Belgium 3,70 Japan 3,58Netherlands 3,62 South Korea 3,46Japan 2,96 Romania 2,41South Korea 2,86 Switzerland 2,26Romania 1,99 Poland 2,08Switzerland 1,87 India 1,88Poland 1,72 Austria 1,62India 1,56 Sweden 1,62Austria 1,34 Hungary 1,38Sweden 1,34 Bulgaria 1,30Hungary 1,14 Greece 1,15Bulgaria 1,08 Czech Republic 1,13Taiwan 1,05 Thailand 1,05Greece 0,95 Israel 1,03Czech Republic 0,93 Finland 0,99Thailand 0,86 Kazakhistan 0,97Israel 0,85 Iran 0,88Finland 0,82 Ireland 0,83Kazakhistan 0,80 Indonesia 0,79Iran 0,74 Malaysia 0,76Saudi Arabia 0,74 Slovakia 0,71Denmark 0,73 Egypt 0,66Ireland 0,68 Portugal 0,50Indonesia 0,66Malaysia 0,63Slovakia 0,58Egypt 0,55Portugal 0,41

Total 100 Total 100

Number of Countries 36 Number of Countries 31

DEVELOPED COUNTRIES Weight (%) DEVELOPING COUNTRIES Weight (%)Germany 22,48 China 40,08Italy 11,05 Russia 14,15USA 9,90 Romania 7,32France 9,55 Poland 6,31England 7,44 India 5,72Spain 5,64 Hungary 4,18Belgium 5,09 Bulgaria 3,96Netherlands 4,98 Thailand 3,18Japan 4,07 Kazakhistan 2,95South Korea 3,93 Iran 2,71Switzerland 2,57 Saudi Arabia 2,70Austria 1,84 Indonesia 2,41Sweden 1,84 Malaysia 2,32Taiwan 1,44 Egypt 2,01Greece 1,30Czech Republic 1,28Israel 1,17Finland 1,13Denmark 1,00Ireland 0,94Slovakia 0,80Portugal 0,56

Total 100 Total 100Number of Countries 22 Number of Countries 14

CPI Based REER

Coverage

2 criteria while selecting the countries:• shares in Turkey’s foreign trade (domestic market effect)• competition in the other markets (third-country effect)

For CPI based REER Share of 36 Countries’ exports (X) and imports (M) in Turkey’s total foreign

trade for 2006-2008 period in terms of UN Standard International Trade Classification (SITC 5-8, Manufactured goods)

79,4 %

Shares of Developed (22) and Developing (14) Countries’ (X) and (M) in 80% of Turkey’s foreign trade for 2006-2008 period, respectively

73,2% 26,8%

e.g. calculation:Germany’s weight in developed countries 22,4 % ((16,4/73,2)*100)China’s weight in developing countries 40 % ((10,9/26,8)*100)

Data: Consumer and Producer Prices, IMF IFS

Data: Exchange Rates, CBRT EDDS

Data: Exchange Rates, OANDA

Consumer Price Index (CPI) Based REER (2003=100)

80

90

100

110

120

130

140

150Ja

n-03

Mar

-03

May

-03

Jul-0

3Se

p-03

Nov-

03Ja

n-04

Mar

-04

May

-04

Jul-0

4Se

p-04

Nov-

04Ja

n-05

Mar

-05

May

-05

Jul-0

5Se

p-05

Nov-

05Ja

n-06

Mar

-06

May

-06

Jul-0

6Se

p-06

Nov-

06Ja

n-07

Mar

-07

May

-07

Jul-0

7Se

p-07

Nov-

07Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov-

08Ja

n-09

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov-

09Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov-

10Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Nov-

11Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov-

12Ja

n-13

Mar

-13

May

-13

Jul-1

3

CPI Based REER (2003=100)CPI - Developing Countries - Based REER (2003=100)CPI - Developed Countries - Based REER (2003=100)

Producer Price Index (PPI) Based REER (2003=100)

90

95

100

105

110

115

120

125

130Ja

n-03

Mar

-03

May

-03

Jul-0

3Se

p-03

Nov-

03Ja

n-04

Mar

-04

May

-04

Jul-0

4Se

p-04

Nov-

04Ja

n-05

Mar

-05

May

-05

Jul-0

5Se

p-05

Nov-

05Ja

n-06

Mar

-06

May

-06

Jul-0

6Se

p-06

Nov-

06Ja

n-07

Mar

-07

May

-07

Jul-0

7Se

p-07

Nov-

07Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov-

08Ja

n-09

Mar

-09

May

-09

Jul-0

9Se

p-09

Nov-

09Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov-

10Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Nov-

11Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov-

12Ja

n-13

Mar

-13

May

-13

Jul-1

3

PPI Based REER (2003=100)

Unit Labor Cost (ULC) Based REER* (2003=100)

(*) Due to the fact that Organisation for Economic Co-operation and Development (OECD) has terminated releasing unit labor cost data of countries, the data cannot be updated after 2012Q1.

90

100

110

120

130

140

150

2003

-Q1

2003

-Q2

2003

-Q3

2003

-Q4

2004

-Q1

2004

-Q2

2004

-Q3

2004

-Q4

2005

-Q1

2005

-Q2

2005

-Q3

2005

-Q4

2006

-Q1

2006

-Q2

2006

-Q3

2006

-Q4

2007

-Q1

2007

-Q2

2007

-Q3

2007

-Q4

2008

-Q1

2008

-Q2

2008

-Q3

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

2009

-Q4

2010

-Q1

2010

-Q2

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

ULC Based REER (2003=100) (*)

the Central Bank of the Republic of Turkey

http://www.tcmb.gov.tr/

Data/Periodic Data/«Real Effective Exchange Rate»

Data/Statistical Data/«Electronic Data Delivery System (EDDS)»

Turkish Lira Sign