Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation
AbstractThis paper investigates the hypothesis that there is a causal relation between speculative pressure and real exchange rate overvaluation, banking-sector fragility, and the level of international reserves in Turkey. An autoregressive distributed lag (ARDL) bounds-testing procedure and Granger causality within vector error-correction models (VECM) are applied to the period after the liberalization of capital flows (August 1989-August 2006). The results of the ARDL bounds test support the theory that exchange market pressure is in a long-run equilibrium relation with the three hypothesized variables over the sample period. On the other hand, the results of the short-run and long-run Granger causality tests indicate the existence of Granger causality running from the three variables to exchange market pressure. The findings further suggest that a feedback relation exists between banking-sector fragility and exchange market pressure.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 45 (2009)
Issue (Month): 2 (March)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
ARDL bounds test; exchange market pressure; Granger causality;
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