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Currency and Financial Crises in Turkey 2000-2001: Bad Fundamentals or Bad Luck?

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  • F. Gulcin Ozkan

Abstract

This paper attempts to explore the underlying causes of twin crises experienced by Turkey in November 2000 and February 2001. We study an extensive set of leading indicators of crises that are drawn from the existing literature. Our results identify three sets of vulnerabilities in the Turkish economy in triggering the financial crisis and bringing about the collapse of the Turkish lira. These are: first, the weak external position caused by excessive debt burden combined with the loss of competitiveness; second, the weak fiscal position resulting from the record levels of interest payments on domestic borrowing; and most importantly, third, weaknesses in the financial and banking sector. Given these observations, we argue that the success of financial sector reform is instrumental not only for putting the economy on a sustainable recovery path but also for reducing the likelihood of similar crises in the future. The general lesson to be drawn from this experience is that a sound financial system is a pre-condition for the successful operation of a fixed exchange rate regime. Copyright Blackwell Publishing Ltd 2005.

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  • F. Gulcin Ozkan, 2005. "Currency and Financial Crises in Turkey 2000-2001: Bad Fundamentals or Bad Luck?," The World Economy, Wiley Blackwell, vol. 28(4), pages 541-572, April.
  • Handle: RePEc:bla:worlde:v:28:y:2005:i:4:p:541-572
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    Cited by:

    1. Canan Yildirim, 2009. "Moral Hazard, Corporate Governance, and Bank Failure: Evidence from The 2000-2001 Turkish Crises," Working Papers 486, Economic Research Forum, revised May 2009.
    2. Mete Feridun, 2009. "Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(2), pages 65-81, March.
    3. Ari, Ali, 2012. "Early warning systems for currency crises: The Turkish case," Economic Systems, Elsevier, vol. 36(3), pages 391-410.
    4. Ozkaya, Ata, 2014. "Creative accounting practices and measurement methods: Evidence from Turkey," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-27.
    5. Kesjana Halili & Hatice Jenkins, 2010. "An Evaluation of the Risk Management Practices of Commercial Banks in North Cyprus," Development Discussion Papers 2010-01, JDI Executive Programs.
    6. Mustafa Kilinç & Zübeyir Kilinç & M. Ibrahim Turhan, 2012. "Resilience of the Turkish Economy During the Global Financial Crisis of 2008," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(S5), pages 19-34, November.
    7. Mete FERIDUN, 2008. "Currency Crises In Emerging Markets: The Case Of Post-Liberalization Turkey," The Developing Economies, Institute of Developing Economies, vol. 46(4), pages 386-427.
    8. Arslan, Ozgur & Florackis, Chrisostomos & Ozkan, Aydin, 2006. "The role of cash holdings in reducing investment-cash flow sensitivity: Evidence from a financial crisis period in an emerging market," Emerging Markets Review, Elsevier, vol. 7(4), pages 320-338, December.
    9. Ozkaya, Ata, 2013. "The Domestic Debt Intolerance and Bad Equilibrium: An Empirical Default Model," GIAM Working Papers 13-1, Galatasaray University Economic Research Center.

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