# Use VAR to estimate exchange rate

**Question description**

My RawDataa.xlsxmy-data.xlsxaim is to estimate using VAR, how the currency substitution, exchange
rate, real effective exchange rate and interest rate behave. Currency
substitution data I achieved by dividing the foreign currency deposits
by the M2 definition of money supply. The exchange rate is the
USD/Turkish Lira exchange rate, real effective exchange rate I obtained
from the Central Bank database and the interest rate is the maximum
annual rate paid to turkish lira deposits.

In January 2005, the Turkish Lira was redenominated, by taking off 6
zeros from the currency. So I would like to find out if this has
effected the currency substitution growth. I suspect it should have a
negative impact since this would increase the confidence in the turkish
lira.

I need to find out the impulse responses of currency substitution to
changes in the exchange rate, real effective exchange rate and also to
deposit rate.

I guess we'd need to take natural logs of all but the interest rate. And
introduce a dummy variable for the years from 2005 onwards.

PLEASE USE E-Views ONLY

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