Dedollarization in Turkey after decades of dollarization: A myth or reality?

The paper analyzes dollarization in the Turkish economy given the evidence on dedollarization signals. On conducting a Vector Autoregression (VAR) model, the empirical evidence suggests that dollarization has mostly been shaped by macroeconomic imbalances as measured by exchange rate depreciation vo...

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Bibliographic Details
Published in:Physica A 2007-11, Vol.385 (1), p.292-306
Main Authors: Metin-Özcan, Kıvılcım, Us, Vuslat
Format: Article
Language:English
Subjects:
Dedollarization
Dollarization
Hysteresis
Impulse response
VAR
Variance decomposition
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Summary:The paper analyzes dollarization in the Turkish economy given the evidence on dedollarization signals. On conducting a Vector Autoregression (VAR) model, the empirical evidence suggests that dollarization has mostly been shaped by macroeconomic imbalances as measured by exchange rate depreciation volatility, inflation volatility and expectations. Furthermore, the generalized impulse response function (IRF) analysis, in addition to the analysis of variance decomposition (VDC) gives support to the notion that dollarization seems to sustain its persistent nature, thus hysteresis still prevails. Hence, unfavorable macroeconomic conditions apparently contribute to dollarization while dollarization itself contains inertia. Furthermore, dedollarization that presumably started after 2001 has lost headway after May 2006. Thus, it seems too early to conclude that dollarization changed its route to dedollarization.
ISSN:0378-4371
1873-2119
DOI:10.1016/j.physa.2007.06.018