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Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation

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  • Mete Feridun

Abstract

This 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.

Suggested Citation

  • 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.
  • Handle: RePEc:mes:emfitr:v:45:y:2009:i:2:p:65-81
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    Cited by:

    1. Eduardo Court & Emre Ozsoz & Erick W. Rengifo, 2012. "The Impact of Deposit Dollarization on Financial Deepening," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(6), pages 39-52, November.
    2. Lazăr, Dorina & Todea, Alexandru & Filip, Diana, 2012. "Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets," Economic Systems, Elsevier, vol. 36(3), pages 338-350.
    3. Alejandro Arrieta Herrera & Jorge Guillen Uyen, 2012. "Currency-Induced Credit Risk in a Dollarized Economy," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(5), pages 105-114, September.
    4. Hegerty, Scott W., 2012. "Money market pressure in emerging economies: International contagion versus domestic determinants," Economic Systems, Elsevier, vol. 36(4), pages 506-521.
    5. repec:mes:emfitr:v:52:y:2016:i:1:p:123-135 is not listed on IDEAS
    6. Eduardo Court & Emre Ozsoz & Erick W. Rengifo, 2012. "The Impact of Deposit Dollarization on Financial Deepening," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(6), pages 39-52, November.
    7. Scott W Hegerty, 2010. "Exchange-market pressure and currency crises in Latin America: Empirical tests of their macroeconomic determinants," Economics Bulletin, AccessEcon, vol. 30(3), pages 2210-2219.
    8. Ali Ari & Raif Cergibozan, 2016. "The Twin Crises: Determinants of Banking and Currency Crises in the Turkish Economy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 123-135, January.

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