The Link Between Dollarization and Its Determinants in Turkey

Abstract

Dollarization which is mostly observed in developing countries has been a widely disputed topic in the literature. It occurs due to high inflation and macroeconomic instabilities. In the previous studies the effects, causes and determinants of dollarization were analyzed using the econometric techniques such as co-integration, vector error correction model and vector autoregressive models for multivariate time series methods. We investigate the relationship between dollarization and its determinants such as interest rate differential, Istanbul stock exchange index, central bank reserve ratio, expected inflation, expected depreciation and volatility index using data between 2001 and 2014 for Turkish economy using Geweke linear feedback, causality tests in frequency domain and the wavelet comovement analysis.