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External Financial Stress and External Financing Vulnerability in Turkey : Some Policy Implications for Financial Stability

  • Etkin Ozen
  • Cem Sahin
  • Ibrahim Unalmis

External financial stress is one of the causes of capital outflows and reduction in borrowing ability of emerging markets. Sudden reversal of capital inflows and disruption in access to the international capital markets could be threat for the domestic financial stability as in the case of Asian Crisis in 1997-1998. This paper analyses the behavior of external financing sources of Turkey, namely FX non-core liabilities of the banking system and portfolio flows, for periods of 1995-2000 and 2004-2012. Our results show that unlike the 1995-2000 period, FX non-core liabilities of the banking system are very sensitive to the external financial stress during the 2004-2012 period. Portfolio flows decline in both cases but with a higher magnitude in the second period.Our results have important policy implications.

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Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 13 (2013)
Issue (Month): Special Issue on Systemic Risk ()
Pages: 65-74

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Handle: RePEc:tcb:cebare:v:13:y:2013:i:specialissue:p:65-74
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  1. Roberto Rigobon, 2001. "Contagion: How to Measure It?," NBER Working Papers 8118, National Bureau of Economic Research, Inc.
  2. Burcu Aydin & Deniz Igan, 2012. "Bank Lending in Turkey: Effects of Monetary and Fiscal Policies," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(5), pages 78-104, September.
  3. Stephan Danninger & Irina Tytell & Ravi Balakrishnan & Selim Elekdag, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 09/133, International Monetary Fund.
  4. Michael P. Dooley, 1997. "Financial Liberalization and Policy Challenges," IDB Publications (Working Papers) 6433, Inter-American Development Bank.
  5. Graciela L. Kaminsky & Carmen Reinhart, 2003. "The Center and the Periphery: The Globalization of Financial Turmoil," NBER Working Papers 9479, National Bureau of Economic Research, Inc.
  6. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," FRB Atlanta Working Paper 95-7, Federal Reserve Bank of Atlanta.
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