2008 Crisis and Effects of Monetary Expansions on Exchange Rate Determination : The Case of Turkey

With the recent economic crisis of 2008, global liquidity increased tremendously which in return, gave rise to the concerns regarding the “Currency Wars” due to consecutive monetary expansions conducted by both advanced and emerging countries. This paper, on the one hand presents the related literature and regarding theories; on the other hand, investigates the dynamics of exchange rate determination through a monetary perspective and sets forth a combined framework of Keynesian Liquidity Preference approach and PPP model that explains the exchange rate determination in a statistically significant way. Finally, macroeconomic statistics of Turkey such as inflation rate, percentage change in monetary base M2 and GDP growth that acknowledge the results of regression and VAR analyses, are presented