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Does credit default swap spread affect the value of the Turkish LIRA against the U.S. dollar?

Author

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  • M. Kabir Hassan
  • Selim Kayhan
  • Tayfur Bayatb

Abstract

We examine possible links between CDS spreads and the value of the Turkish lira against the U.S. dollar by using the recently developed rolling window causality method as well as the Markov Switching Vector Autoregressive method. Results show that credit default swap premiums drive the value of the Turkish lira against the U.S. dollar in the post crisis period. We conclude that market risk as a part of financial risk has become an important factor in determining exchange rate fluctuations in the Turkish economy during the post-crisis period.

Suggested Citation

  • M. Kabir Hassan & Selim Kayhan & Tayfur Bayatb, 2017. "Does credit default swap spread affect the value of the Turkish LIRA against the U.S. dollar?," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(1), pages 1-9, March.
    • Handle: RePEc:bor:bistre:v:17:y:2017:i:1:p:1-9
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    Cited by:

    1. Mustafa Tevfik KARTAL & Özer DEPREN & Serpil KILIC DEPREN, 2021. "Do Monetary Policy Measures Affect Foreign Exchange Rates during the COVID-19 Pandemic? Evidence from Turkey," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 15(2), pages 175-202.
    2. Gemici, Eray & Gök, Remzi & Bouri, Elie, 2023. "Predictability of risk appetite in Turkey: Local versus global factors," Emerging Markets Review, Elsevier, vol. 55(C).

    More about this item

    Keywords

    CDS premium; MS-VAR; Rolling window causality; Exchange rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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