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A tail index tour across foreign exchange rate regimes in Turkey

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  • Cem Payaslioglu

Abstract

This article uses daily foreign exchange data in the USD/TRL foreign exchange market to test for structural breaks due to exchange rate regime switches. The analysis focus on extreme movements of exchange rate returns across different regimes using tail index indicators. Sequential and rolling tests, developed by Quintos et al (2001) are used to identify the dates of breaks in the Turkish exchange rate for the period 28 January 1980 to 11 October 2004 and for the sub-periods which cover the fixed exchange rate regime from 28 January 1980 to 22 February 2001 and the flexible exchange rate regime from 23 February 2001 to 11 October 2004. Compelling evidence for breaks in the tail index is found not only across but also within different exchange rate regimes - especially within the fixed regime. Moreover, breakpoint dates are clustered right before the crisis in 2001. This makes the tail index indicator a fairly good candidate for a variable to be used in early warning systems for currency crises.

Suggested Citation

  • Cem Payaslioglu, 2009. "A tail index tour across foreign exchange rate regimes in Turkey," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 381-397.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:3:p:381-397
    DOI: 10.1080/00036840601007211
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    References listed on IDEAS

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    1. Mr. Cem Karacadag & Roberto Guimarães-Filho, 2004. "The Empirics of Foreign Exchange Intervention in Emerging Markets: The Cases of Mexico and Turkey," IMF Working Papers 2004/123, International Monetary Fund.
    2. Mr. Andrea Bubula & Ms. Inci Ötker, 2002. "The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies," IMF Working Papers 2002/155, International Monetary Fund.
    3. Mr. Abdul d Abiad, 2003. "Early Warning Systems: A Survey and a Regime-Switching Approach," IMF Working Papers 2003/032, International Monetary Fund.
    4. Candelon, Bertrand & Straetmans, Stefan, 2006. "Testing for multiple regimes in the tail behavior of emerging currency returns," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1187-1205, November.
    5. Mrs. Gilda C Fernandez & Mr. Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float: Operational Aspects of Moving towards Exchange Rate Flexibility," IMF Working Papers 2004/126, International Monetary Fund.
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    Cited by:

    1. Ibragimov Marat & Khamidov Rufat, 2010. "Heavy-Tailedness and Volatility in Emerging Foreign Exchange Markets: Theory and Empirics," EERC Working Paper Series 10/06e, EERC Research Network, Russia and CIS.
    2. Ibragimov, Marat & Ibragimov, Rustam & Kattuman, Paul, 2013. "Emerging markets and heavy tails," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2546-2559.
    3. Yucel, Eray, 2011. "A Review and Bibliography of Early Warning Models," MPRA Paper 32893, University Library of Munich, Germany.

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