IDEAS home Printed from https://ideas.repec.org/a/ijs/journl/v0y2024i40p199-207.html
   My bibliography  Save this article

Dollarization and the Real Exchange Rate Nexus in Türkiye’s Economy

Author

Listed:
  • Ahmet Metin Çamdibi

    (Marmara Üniversitesi, Bankacılık ve Sigortacılık Enstitüsü, Bankacılık Doktora Programı, İstanbul, Türkiye)

  • Server Demirci

    (Marmara Üniversitesi Finansal Bilimler Fakültesi, İstanbul, Türkiye)

Abstract

Money has three main functions, serving as a medium of exchange, a unit of account, and a store of value. Dollarization is defined as having foreign currencies replace and/or accompany local currency in fulfilling these functions. Dollarization has the potential of affecting economies in various ways. The existence of dollarization is also an important issue regarding its effect on increasing economic fragility. Exchange rate fluctuations cause financial crises, while dollarization boosts the effects of economic crises. The relationship between dollarization and exchange rate fluctuations has always attracted the attention of both policy makers and researchers. The combined presence of dollarization and exchange rate fluctuations makes economies prone to inflationary risks due to depreciation of local currency. Therefore, studies should consider the significance of inflation. Inflation-adjusted real exchange rate data are useful for an accurate analysis in this regard. The Turkish economy has numerous observations on dollarization and exchange rate fluctuations since the beginning of its transition to financial liberalization in the 1980s. The aftermath of the 2001 financial crisis in Türkiye marked the start of a new era of stability, as significant successes were gained over controlling inflation, accompanied by legislative regulations through the Banking Regulation and Supervision Agency and the Central Bank of the Republic of Türkiye. However, fundamental issues such as dollarization, exchange rate fluctuations, and inflation still maintain their importance in the Turkish economy these days. This study examines the relationship between dollarization and the real exchange rate over the January 2003-December 2023 period using the literature’s newly added Fourier unit root and cointegration tests. The results of these tests have been implemented into the Granger causality test, which shows dollarization to affect the real exchange rate, while the real exchange rate does not cause dollarization.

Suggested Citation

  • Ahmet Metin Çamdibi & Server Demirci, 2024. "Dollarization and the Real Exchange Rate Nexus in Türkiye’s Economy," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul Journal of Economics-Istanbul Iktisat Dergisi, vol. 0(40), pages 199-207, June.
    • Handle: RePEc:ijs:journl:v:0:y:2024:i:40:p:199-207
    DOI: 10.26650/ekoist.2024.40.1467704
    as

    Download full text from publisher

    File URL: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/F742632440DC4B6FAC5263DD381517A6
    Download Restriction: no
    File URL: https://iupress.istanbul.edu.tr/tr/journal/ekoist/article/turkiye-ekonomisinde-dolarizasyon-ve-reel-kur-iliskisi
    Download Restriction: no
    File URL: https://libkey.io/10.26650/ekoist.2024.40.1467704?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Yinusa, Dauda Olalekan, 2008. "Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 811-826.
    2. Banerjee, Piyali & Arčabić, Vladimir & Lee, Hyejin, 2017. "Fourier ADL cointegration test to approximate smooth breaks with new evidence from Crude Oil Market," Economic Modelling, Elsevier, vol. 67(C), pages 114-124.
    3. Akcay, O. Cevdet & Alper, C. Emre & Karasulu, Meral, 1997. "Currency substitution and exchange rate instability: The Turkish case," European Economic Review, Elsevier, vol. 41(3-5), pages 827-835, April.
    4. Enders, Walter & Lee, Junsoo, 2012. "The flexible Fourier form and Dickey–Fuller type unit root tests," Economics Letters, Elsevier, vol. 117(1), pages 196-199.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sefa Ozbek & Mustafa Naimoglu, 2022. "The Environmental Quality-Economic Complexity Relationship: A Fourier Cointegration Analysis of the Turkish Economy," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-1), pages 407-431, June.
    2. Sok Heng Lay & Makoto Kakinaka & Koji Kotani, 2010. "Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia," Working Papers EMS_2010_18, Research Institute, International University of Japan.
    3. Razvan Pascalau & Junsoo Lee & Saban Nazlioglu & Yan (Olivia) Lu, 2022. "Johansen‐type cointegration tests with a Fourier function," Journal of Time Series Analysis, Wiley Blackwell, vol. 43(5), pages 828-852, September.
    4. Hisao Kumamoto & Masao Kumamoto, 2014. "Does Currency Substitution Affect Exchange Rate Volatility?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 698-704.
    5. Dagher, Leila & Hasanov, Fakhri J., 2023. "Oil market shocks and financial instability in Asian countries," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 182-195.
    6. Hasanov, Fakhri J. & Shannak, Sa'd, 2020. "Electricity incentives for agriculture in Saudi Arabia. Is that relevant to remove them?," Energy Policy, Elsevier, vol. 144(C).
    7. Veli Yilanci & Recep Ulucak & Yaoqi Zhang & Valeria Andreoni, 2023. "The role of affluence, urbanization, and human capital for sustainable forest management in China: Robust findings from a new method of Fourier cointegration," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(2), pages 812-824, April.
    8. Lula G. Mengesha & Mark J. Holmes, 2013. "Does Dollarization Alleviate Or Aggravate Exchange Rate Volatility?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 99-118, June.
    9. Pata, Ugur Korkut & Yilanci, Veli & Zhang, Qianxiao & Shah, Syed Ale Raza, 2022. "Does financial development promote renewable energy consumption in the USA? Evidence from the Fourier-wavelet quantile causality test," Renewable Energy, Elsevier, vol. 196(C), pages 432-443.
    10. Hasanov, Fakhri J. & Aliyev, Ruslan & Taskin, Dilvin & Suleymanov, Elchin, 2023. "Oil rents and non-oil economic growth in CIS oil exporters. The role of financial development," Resources Policy, Elsevier, vol. 82(C).
    11. Muge Seda Ates & Gizem Ates & Demet Toktas & Esra Canpolat Gokce, 2023. "The Relationship Imports and Exports in Free Zones Have with Turkiye Foreign Trade and Employment: The Fourier Autoregressive Distributive Lag (ADL) Hidden Cointegration Test," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 385-418, June.
    12. repec:eco:journ1:2014-03-01 is not listed on IDEAS
    13. Phiri, Andrew, 2018. "Fiscal sustainability in BRICS countries: Evidence from asymmetric unit root tests augmented with Fourier fucntion," MPRA Paper 85501, University Library of Munich, Germany.
    14. Morana, Claudio, 2024. "A new macro-financial condition index for the euro area," Econometrics and Statistics, Elsevier, vol. 29(C), pages 64-87.
    15. Güriş, Burak, 2017. "A New Nonlinear Unit Root Test with Fourier Function," MPRA Paper 82260, University Library of Munich, Germany.
    16. Durusu-Ciftci, Dilek & Soytas, Ugur & Nazlioglu, Saban, 2020. "Financial development and energy consumption in emerging markets: Smooth structural shifts and causal linkages," Energy Economics, Elsevier, vol. 87(C).
    17. Winkelried, Diego, 2021. "Unit roots in real primary commodity prices? A meta-analysis of the Grilli and Yang data set," Journal of Commodity Markets, Elsevier, vol. 23(C).
    18. Shahzad, Syed Jawad Hussain & Nor, Safwan Mohd & Hammoudeh, Shawkat & Shahbaz, Muhammad, 2017. "Directional and bidirectional causality between U.S. industry credit and stock markets and their determinants," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 46-61.
    19. Hyejin Lee & Dong-Yop Oh & Ming Meng, 2019. "Stationarity and cointegration of health care expenditure and GDP: evidence from tests with smooth structural shifts," Empirical Economics, Springer, vol. 57(2), pages 631-652, August.
    20. Syed, Qasim Raza & Durani, Farah & Kisswani, Khalid M. & Alola, Andrew Adewale & Siddiqui, Aaliyah & Anwar, Ahsan, 2024. "Testing natural resource curse hypothesis amidst geopolitical risk: Global evidence using novel Fourier augmented ARDL approach," Resources Policy, Elsevier, vol. 88(C).
    21. Kirikkaleli, Dervis, 2023. "Resource efficiency, energy productivity, and environmental quality in Japan," Resources Policy, Elsevier, vol. 85(PB).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijs:journl:v:0:y:2024:i:40:p:199-207. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ertugrul YASAR (email available below). General contact details of provider: https://edirc.repec.org/data/ifisttr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.