Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro

Muhsin Kar, Tayfur Bayat and Selim Kayhan
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Tayfur Bayat: Department of Economics, İnönü University, Malatya 44280, Turkey
Selim Kayhan: Department of Economics and Finance, University of New Orleans, New Orleans, LA 70148, USA

IJFS, 2016, vol. 4, issue 3, 1-18

Abstract: In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015.

Keywords: CDS premium; asymmetric causality; rolling windows causality (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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