IDEAS home Printed from https://ideas.repec.org/a/ist/journl/v72y2022i2p625-651.html
   My bibliography  Save this article

Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye

Author

Listed:
  • Murat Eren

    (Igdir University, Faculty of Economics and Administrative Sciences, Department of Health Management, Igdir, Turkiye)

  • Selim Basar

    (Anadolu University, Faculty of Economics, Department of Labour Economics and Industrial Relations, Eskisehir, Turkiye)

  • Bengu Tosun

    (Independent Researcher, Erzurum, Turkiye)

Abstract

In this study, developed from the importance of the deformation caused by dollarization in developing countries, the effect of risk level on financial dollarization is examined. In the research conducted for Turkey, one of the riskiest countries in the world according to the five-year Credit Default Swaps (CDS) premium values as of the date of the study, weekly data between the period of December 14, 2012 and February 11, 2022 are used to determine the effect of the risk level for short periods. The relationship between variables is examined using the Fourier Cointegration Test (FSHIN) cointegration test and the Dynamic Least Squares (DOLS) estimator. The findings show that country risk, exchange rate, and domestic currency deposit interest rates affect financial dollarization positively, while foreign currency deposit interest rates affect it negatively. The study carried out for Turkey sheds light on the factors that should be considered in high-risk countries facing the dollarization problem and presents policy recommendations for developing countries in this direction.

Suggested Citation

  • Murat Eren & Selim Basar & Bengu Tosun, 2022. "Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 625-651, December.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:2:p:625-651
    DOI: 10.26650/ISTJECON2021-1191952
    as

    Download full text from publisher

    File URL: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/0153203204FE404981153FC16F8CD089
    Download Restriction: no
    File URL: https://iupress.istanbul.edu.tr/en/journal/ije/article/dollarization-and-risk-premium-in-a-risky-country-an-investigation-on-turkiye
    Download Restriction: no
    File URL: https://libkey.io/10.26650/ISTJECON2021-1191952?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mr. Eduardo Levy Yeyati & Mr. Alain Ize, 1998. "Dollarization of Financial Intermediation: Causes and Policy Implications," IMF Working Papers 1998/028, International Monetary Fund.
    2. Nikola Fabris & Nina Vujanović, 2017. "The Impact of Financial Dollarization on Inflation Targeting: Empirical Evidence from Serbia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 6(2), pages 23-43.
    3. Broda, Christian & Yeyati, Eduardo Levy, 2006. "Endogenous Deposit Dollarization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 963-988, June.
    4. Harvey David I & Leybourne Stephen J & Xiao Bin, 2008. "A Powerful Test for Linearity When the Order of Integration is Unknown," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(3), pages 1-24, September.
    5. Eduardo Levy Yeyati, 2006. "Financial dollarization: evaluating the consequences [‘A simple model of monetary policy and currency crises’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(45), pages 62-118.
    6. Adeniji, Sesan, 2013. "Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach," MPRA Paper 52551, University Library of Munich, Germany, revised 28 Dec 2013.
    7. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
    8. Ching-Chuan Tsong & Cheng-Feng Lee & Li-Ju Tsai & Te-Chung Hu, 2016. "The Fourier approximation and testing for the null of cointegration," Empirical Economics, Springer, vol. 51(3), pages 1085-1113, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vieira, Fabrício A.C. & Holland, Márcio & Resende, Marco F., 2012. "Financial dollarization and systemic risks: New empirical evidence," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1695-1714.
    2. Jeanne, Olivier, 2003. "Why Do Emerging Economies Borrow in Foreign Currency?," CEPR Discussion Papers 4030, C.E.P.R. Discussion Papers.
    3. Andrii Kaminskyi & Nataliia Versal, 2018. "Risk Management of Dollarization in Banking: Case of Post-Soviet Countries," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 14(2), pages 21-40.
    4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
    5. Alicia Garcia Herrero & Juan Carlos Berganza, 2004. "What Makes Balance Sheet Effects Detrimental For The Country Risk Premium?," International Finance 0408002, University Library of Munich, Germany.
    6. Levy Yeyati, Eduardo & Sturzenegger, Federico, 2010. "Monetary and Exchange Rate Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4215-4281, Elsevier.
    7. Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," Business School Working Papers isitforreal, Universidad Torcuato Di Tella.
    8. Valida Pantsulaia & Ana Jangveladze & Shalva Mkhatrishvili, 2023. "Negative Externalities of Financial Dollarization," NBG Working Papers 01/2023, National Bank of Georgia.
    9. Sanchez-Fung, Jose R., 2008. "The day-to-day interbank market, volatility, and central bank intervention in a developing economy," Economics Discussion Papers 2008-2, School of Economics, Kingston University London.
    10. Mr. Gianni De Nicolo & Mr. Patrick Honohan & Mr. Alain Ize, 2003. "Dollarization of the Banking System: Good or Bad?," IMF Working Papers 2003/146, International Monetary Fund.
    11. Eduardo Levy-Yeyati, 2011. "Exchange Rate Regimes," Business School Working Papers 2011-02, Universidad Torcuato Di Tella.
    12. Sunel, Enes, 2010. "On inflation, wealth inequality and welfare in emerging economies," MPRA Paper 25943, University Library of Munich, Germany.
    13. Patrick Amir Imam, 2022. "De‐dollarization in Zimbabwe: What lessons can be learned from other sub‐Saharan countries?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 770-801, January.
    14. Juan F. Castro & Eduardo Morón & Diego Winkelried, 2004. "Assessing Financial Vulnerability in Partial Dollarized Economies," Working Papers 04-03, Centro de Investigación, Universidad del Pacífico.
    15. Sami Ben Naceur & Amr Hosny & Gregory Hadjian, 2019. "How to de-dollarize financial systems in the Caucasus and Central Asia?," Empirical Economics, Springer, vol. 56(6), pages 1979-1999, June.
    16. Juan Antonio Morales Anaya, 2003. "Dollarization of assets and liabilities: Problem or solution?. The case of Bolivia," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 6(1), pages 7-39, June.
    17. Eduardo Moron & Juan F. Castro, 2003. "Dedollarizing the Peruvian Economy," Macroeconomics 0312005, University Library of Munich, Germany.
    18. International Monetary Fund, 2007. "Ukraine: Selected Issues," IMF Staff Country Reports 2007/047, International Monetary Fund.
    19. Eduardo Morón & Juan F. Castro, 2003. "De-dollarizing the Peruvian Economy: A Portfolio Approach," Working Papers 03-01, Centro de Investigación, Universidad del Pacífico.
    20. Eduardo Levy Yeyati, 2004. "Dollars, Debt and the IFIs: Dedollarizing Multilateral Lending," Business School Working Papers dedollmultlending, Universidad Torcuato Di Tella.

    More about this item

    Keywords

    Dollarization; Credit default swaps; Risk level; Monetary policy JEL Classification: C32 ; E43 ; E52 ; E58;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ist:journl:v:72:y:2022:i:2:p:625-651. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ertugrul YASAR (email available below). General contact details of provider: https://edirc.repec.org/data/ifisttr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.