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Deposit Dollarization in Turkey: A Rolling Window Analysis

A. Yasemin Yalta () and A. Talha Yalta ()
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A. Yasemin Yalta: Department of Economics, Hacettepe University, Turkey
A. Talha Yalta: Department of Economics, TOBB University of Economics and Technology, Turkey

No 1626, Working Papers from Economic Research Forum

Abstract: In the recent years deposit dollarization in Turkey has been on the rise, reaching record levels in 2021. This was caused by a series of economic as well as political shocks namely the coup attempt in 2016, the switch to the presidential system in 2018, and the Covid-19 pandemic in 2020. This study contributes to the literature by examining the time varying reactions of deposit dollarization to the changing inflation, interest rate volatility, real exchange rate, and the consumer confidence before and after these shocks experienced by the country. The results based on rolling window maximum entropy bootstrap estimates, and monthly data between 2013 and 2021, reveal that all of the model variables had significant and sometimes asymmetric effects on deposit dollarization during different stages of this turbulent period. In particular, we observe a weakening effect of both inflation and the real exchange rate over time, while the impact of interest rate volatility increases after 2017. Therefore, a policy change toward increasing monetary policy credibility is required for achieving de-dollarization in the Turkish economy.

Pages: 15
Date: 2023-03-20, Revised 2023-03-20
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