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Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey

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Author Info
Mehtap Kesriyeli (Research Department, Central Bank of the Republic of Turkey, Ankara, Turkey)
Erdal Ozmen () (Department of Economics, METU)
Serkan Yigit (Research Department, Central Bank of the Republic of Turkey, Ankara, Turkey)
Abstract

This paper investigates the causes and balance sheet effect consequences of the liability dollarisation of non-financial sectors in Turkey using the Company Accounts database compiled by the Central Bank of Turkey. The results from the panel EGLS and GMM procedures suggest that both sector-specific (tangibility, leverage ratio, export share) and macroeconomic condition variables (inflation, real exchange rate change, budget deficits and confidence) are significant in explaining the corporate sector liability dollarisation. Firms are found to match only partially the currency composition of their debt with their income streams making them potentially vulnerable to negative balance sheet affects of real exchange rate depreciation shocks. Consistent with this argument, real exchange rate depreciations are found to be contractionary, in terms of investments and profits, for sectors with higher liability dollarisation. Macroeconomic instability, as proxied by budget deficits and inflation, appears to have a significant negative affect on the performance of the firms in the non-financial sectors, in terms of their investments, sales and profits. Our results also stress the importance of strong macroeconomic policy stance and price stability for an endogenous dedollarisation process along with regulatory measures to limit vulnerabilities caused by dollarisation.

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File URL: http://www.erc.metu.edu.tr/menu/series05/0507.pdf
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Publisher Info
Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 0507.

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Length: 27 pages
Date of creation: Nov 2005
Date of revision: Nov 2005
Handle: RePEc:met:wpaper:0507

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Web page: http://www.erc.metu.edu.tr
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Related research
Keywords: Balance sheet effects; Capital structure; Corporate sector; Debt composition; Liability dollarisation; Turkey;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
F31 - International Economics - - International Finance - - - Foreign Exchange
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cafer Kaplan & Erdal Ozmen & Cihan Yalcin, 2006. "The Determinants and Implications of Financial Asset Holdings of Non-Financial Firms in Turkey : An Emprical Investigation," Working Papers 0606, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  2. Halil Ibrahim Aydin & Cafer Kaplan & Mehtap Kesriyeli & Erdal Ozmen & Cihan Yalcin & Serkan Yigit, 2006. "Corporate Sector Financial Structure in Turkey : A Descriptive Analysis," Working Papers 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
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