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How Far Can Domestic Credit Growth Explain Speculative Attacks? Empirical Evidence from Turkey

  • Mete Feridun

    ()

    (Department of Economics, Loughborough University)

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    Economies are susceptible to speculative attacks regardless of whether they use fixed or floating exchange rates. Turkish experience in the last two decades constitutes one of the most prominent examples proving this verdict. It is widely accepted that there is a link between domestic credit and speculative attacks on the currency. Nevertheless, the literature on currency crises clearly lacks a country-specific study that addresses the long-run relationship between this indicator and the speculative pressure in the exchange market. This article aims at filling this gap in the literature using monthly Turkish time series data spanning the period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the series are stationary. Hence, no cointegration analysis was carried out before the Granger-causality tests. Granger causality tests fail to establish a causal relationship between domestic credit and exchange market pressure.

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/mferidun_wp2.pdf
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    Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2006_23.

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    Date of creation: Dec 2006
    Date of revision: Dec 2006
    Handle: RePEc:lbo:lbowps:2006_23
    Contact details of provider: Postal: Loughborough, Leicestershire, LE11 3TU
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    Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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    1. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
    2. Dornbusch, Rudiger, 1987. "Collapsing exchange rate regimes," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 71-83, October.
    3. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
    4. Eliasson, Ann-Charlotte & Kreuter, Christof, 2001. "On crisis models: An alternative crisis definition," Research Notes 01-1, Deutsche Bank Research.
    5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    6. Bengi Kibritcioglu & Bulent Kose & Gamze Ugur, 2001. "A Leading Indicators Approach to the Predictability of Currency," International Finance 0108001, EconWPA, revised 06 Sep 2001.
    7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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