The asymmetric effect of capital flows and credit default swap spreads on the US dollar/Turkish lira exchange rate

This study investigates the asymmetric effects of capital flows and Credit Default Swap (CDS) spreads on the US dollar/Turkish lira exchange rate employing the Nonlinear Auto Regressive Distributed Lag (NARDL) methodology. We used a Turkish monthly dataset covering the period from 2003 to 2022. The findings indicate that capital flows exert an asymmetric impact on the exchange rate under investigation. Capital inflows and outflows exhibit notable significance in both the long and short run. Capital outflows exert a more significant impact on the exchange rate than capital inflows. Furthermore, in the long run, both capital inflows and outflows have a greater effect on the US dollar/Turkish lira exchange rate than in the short term. The results also indicate that both in short-term and long-term the CDS spreads play a notably effective role in determining exchange rates.