Multi-scale interactions between Turkish lira exchange rates and sovereign CDS in Europe and Asia

Chang Liu, Jianping Li, Xiaolei Sun and Jianming Chen

Applied Economics Letters, 2021, vol. 28, issue 7, 599-607

Abstract: This article examined the multi-scale correlations between Turkish lira exchange rates and sovereign credit default swap (CDS) in Turkey, Europe, and Asia by implementing a combined quantile regression (QR) and wavelet approach. The results showed that a severe depreciation of the lira will increase the sovereign risk in Turkey at different time scales. In addition, the results revealed stronger and quicker responses from Asia’s sovereign CDS than Europe’s to the shocks of the lira, which provides important implications for Asian countries and especially Asian emerging markets to prevent external risk contagion and guide the domestic monetary policy.

Date: 2021
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DOI: 10.1080/13504851.2020.1765961

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