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Investigating the Time Varying Nature of the Link between Inflation and Currency Substitution in the Turkish Economy

  • Aysen Arac

    (Hacettepe University, Department of Economics)

  • Funda Telatar

    (Hacettepe University, Department of Economics)

  • Erdinc Telatar

    (Hacettepe University, Department of Economics)

This study investigates the relationship between the rate of inflation and the degree of the currency substitution for Turkey during 1986-2006. Our results show that the correlation coefficient between the two variables has not been constant over time. The results of the Multivariate GARCH model estimated to obtain the correlation coefficients indicate that there is a nonlinear relationship between the inflation rate and the degree of currency substitution. The main policy implication of our study is that it is difficult to stop or to reverse the currency substitution unless a confidence in the domestic currency is established.

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File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-2.pdf
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Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20122.

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Length: 15 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20122
Contact details of provider: Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Web page: http://www.iktisat.hacettepe.edu.tr
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