How Far Can Domestic Credit Growth Explain Speculative Attacks? Empirical Evidence from Turkey
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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|Date of revision:||Dec 2006|
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