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Optimum Currency Areas Theory: An Empirical Application to Turkey

Author

Listed:
  • Ozer Itir

    (Research Asistant Department of International Relations, Hacettepe University, Faculty of Economics and Administrative Sciences, Beytepe, 06800, Ankara, Turkey)

  • Ozkan Ibrahim

    (Department of Economics, Hacettepe University, Faculty of Economics and Administrative Sciences, Beytepe, 06800, Ankara, Turkey)

  • Aktan Okan

    (Department of International Relations, Hacettepe University, Faculty of Economics and Administrative Sciences, Beytepe, 06800, Ankara, Turkey)

Abstract

This study aims to assess Turkey's position relative to European countries with respect to the optimum currency areas (OCA) criteria, taking Germany as the center country and employing Mahalanobis distance as a similarity measure. To this end, we followed a novel approach in the application of Hodrick-Prescott and Baxter-King filters to the industrial production series and the real interest rates under three cases. We then computed OCA similarity indices, calculated countries' similarities with respect to Germany and their nearest neighbors, and compared the results. Our results show that Turkey is the second furthest neighbor country to Germany after Croatia in the first two cases. However, Turkey is the third furthest country to Germany after Norway and Romania in the third case

Suggested Citation

  • Ozer Itir & Ozkan Ibrahim & Aktan Okan, 2007. "Optimum Currency Areas Theory: An Empirical Application to Turkey," South East European Journal of Economics and Business, Sciendo, vol. 2(2), pages 75-88, November.
    • Handle: RePEc:vrs:seejeb:v:2:y:2007:i:2:p:75-88:n:8
    DOI: 10.2478/v10033-007-0008-y
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