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Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye

Author

Listed:
  • Murat Eren

    (Igdir University, Faculty of Economics and Administrative Sciences, Department of Health Management, Igdir, Turkiye)

  • Selim Basar

    (Anadolu University, Faculty of Economics, Department of Labour Economics and Industrial Relations, Eskisehir, Turkiye)

  • Bengu Tosun

    (Independent Researcher, Erzurum, Turkiye)

Abstract

In this study, developed from the importance of the deformation caused by dollarization in developing countries, the effect of risk level on financial dollarization is examined. In the research conducted for Turkey, one of the riskiest countries in the world according to the five-year Credit Default Swaps (CDS) premium values as of the date of the study, weekly data between the period of December 14, 2012 and February 11, 2022 are used to determine the effect of the risk level for short periods. The relationship between variables is examined using the Fourier Cointegration Test (FSHIN) cointegration test and the Dynamic Least Squares (DOLS) estimator. The findings show that country risk, exchange rate, and domestic currency deposit interest rates affect financial dollarization positively, while foreign currency deposit interest rates affect it negatively. The study carried out for Turkey sheds light on the factors that should be considered in high-risk countries facing the dollarization problem and presents policy recommendations for developing countries in this direction.

Suggested Citation

  • Murat Eren & Selim Basar & Bengu Tosun, 2022. "Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 625-651, December.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:2:p:625-651
    DOI: 10.26650/ISTJECON2021-1191952
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    References listed on IDEAS

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    More about this item

    Keywords

    Dollarization; Credit default swaps; Risk level; Monetary policy JEL Classification: C32 ; E43 ; E52 ; E58;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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