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Financial dollarization and its effects on inflation and output in Turkey: a machine learning approach

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  • Murat Aslan

    (Ankara Yıldırım Beyazıt University)

  • Onder Ozgur

    (Ankara Yıldırım Beyazıt University)

Abstract

This study aims to examine the consequences of dollarization on the effectiveness of monetary policy in Türkiye, a nation with a long history of high and sustained dollarization. Türkiye has seen considerable levels of dollarization for almost 40 years. The study uses data from the third quarters of 1998 through 2022. This study investigates the intricate and nonlinear connections between dollarization, monetary policy, and other economic variables. It does so by using machine learning (ML) models. The findings show that dollarization has a modest impact on economic expansion and that there may be a favorable relationship between dollarization and financial deepening. The study also reveals how dollarization interacts with other control variables to affect inflation rates. Despite the fact that the ML technique cannot prove causation, this research offers insightful information on the intricate dynamics of dollarization and its implications for the success of monetary policy. For policymakers attempting to comprehend and manage dollarization's possible influence on economic stability in Türkiye and other nations, these findings have major significance.

Suggested Citation

  • Murat Aslan & Onder Ozgur, 2024. "Financial dollarization and its effects on inflation and output in Turkey: a machine learning approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(6), pages 5777-5804, December.
    • Handle: RePEc:spr:qualqt:v:58:y:2024:i:6:d:10.1007_s11135-024-01911-z
    DOI: 10.1007/s11135-024-01911-z
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