The Effect of Economic Policy Uncertainty (EPU) of the Trade Partner Countries on the Real Effective Exchange Rate of Türkiye

This study investigates whether external uncertainties, which significantly impact the exchange rate through various economic channels, are a determining factor in the Turkish economy. The research analyses the impact of the effective exchange rates (EPUs) of five countries, among Türkiye's most important trading partners, on Türkiye’s real effective exchange rate using monthly quantile regression for the period 2000-2021. According to the key findings, the EPUs in the UK and France increase the value of the Turkish lira against foreign currencies, resulting in an appreciation of the TL, while the EPUs of the USA and Germany decrease the value of the Turkish lira, resulting in a depreciation of the TL. In addition, Russia’s EPU has a negative impact on Türkiye’s real effective exchange rate at only the highest quantile level. The results reveal that the Turkish economy is affected by any economic event in foreign powers, highlighting how globalisation has blurred the distinction between national borders and how countries are interconnected through invisible ties.