Archive
Journal of Economics 2026 Journal of Economics 2025
DOI https://doi.org/10.36719/3104-4727/5/26-39
Elgun Jalalzada
NANO ICT company
https://orcid.org/0000-0003-4391-3769
calalzadelgun00@gmail.com
Analysis of the Relationships Between Exchange Rates:
Cointegration and Granger Causality Approach in the
Case of Azerbaijan and Turkey
Abstract
This study investigates the long-run equilibrium and causal relationships between the exchange rates of Azerbaijan (AZN) and Turkey (TRY), specifically analyzing the interdependence of TL/USD and TL/AZN parities. Using monthly time series data from 2010 to 2022, the study employs the Augmented Dickey-Fuller (ADF) test for stationarity, Johansen cointegration test, Vector Error Correction Model (VECM), and Granger causality tests. The empirical results confirm that the series are integrated of order one, I(1), and reveal a statistically significant cointegrating vector, suggesting a stable long-run relationship. The findings indicate that the Azerbaijani manat and Turkish lira move together around a common equilibrium, with a rapid adjustment speed of approximately 90% to restore equilibrium following short-term shocks. Furthermore, the Granger causality analysis demonstrates a bidirectional causal link between the exchange rates, implying mutual predictive power. These results reflect the degree of financial integration and common external exposures of both economies. The study concludes with policy implications regarding exchange rate risk management and monetary policy coordination in the context of dollarized trade environments.
Keywords: Exchange Rates, Cointegration, Granger Causality, Azerbaijan, Turkey, VECM
Views: 21