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Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro

Author

Listed:
  • Muhsin Kar

    (Department of Economics, Yıldırım Beyazıt University, Ankara 06680; Turkey)

  • Tayfur Bayat

    (Department of Economics, İnönü University, Malatya 44280, Turkey)

  • Selim Kayhan

    (Department of Economics and Finance, University of New Orleans, New Orleans, LA 70148, USA)

Abstract

In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015.

Suggested Citation

  • Muhsin Kar & Tayfur Bayat & Selim Kayhan, 2016. "Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro," IJFS, MDPI, vol. 4(3), pages 1-18, July.
    • Handle: RePEc:gam:jijfss:v:4:y:2016:i:3:p:14-:d:73200
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    Cited by:

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