The Impacts of Geopolitical Uncertainty on Turkish Lira during the Erdoğan Administration

Abstract

This paper sets out to explore whether the Turkish geopolitical uncertainty exhibits significant linkages with fluctuations in the Turkish lira (TRY) values against other currencies. The period examined covers the Erdoğan administration (March 2003 up to the present). The innovative geopolitical uncertainty index by Caldara and Iacoviello and modern GARCH methodologies are adopted in order to explore how geopolitical risk influences currency values and the overall economy during this turbulent period. Econometric outcomes reveal that geopolitical uncertainty leads to devaluation of TRY against the US dollar, the Swiss franc and the Swedish krona but in a non-significant manner whereas mixed results emerge concerning the impacts of macroeconomic or financial variables. © 2021 Informa UK Limited, trading as Taylor & Francis Group.