Vol. 10 No. 1 (2022): Business & Management Studies: An International Journal
Articles

Time-varying causality between dollarization and exchange rate

Kubilay Çağrı Yılmaz
Assist. Prof., Manisa Celal Bayar University, Faculty of Business, Manisa, Turkey

Published 2022-03-26

Keywords

  • Döviz Kuru, Dolarizasyon, Finansal Piyasalar
  • Foreign Exchange Rate, Dollarization, Financial Markets

How to Cite

Yılmaz, K. Çağrı. (2022). Time-varying causality between dollarization and exchange rate. Business &Amp; Management Studies: An International Journal, 10(1), 163–175. https://doi.org/10.15295/bmij.v10i1.1982

Abstract

Dollarization is evaluated under two subheadings in the literature: full dollarization and partial dollarization. In full dollarization, the country ultimately uses its currency and uses another currency. In contrast, partial dollarization corresponds to the axis dislocation of foreign currencies in asset purchases to protect the purchasing power of economic units in a country due to the devaluation of the domestic currency in a high inflation situation. From this point of view, Turkey has practised the concept of partial dollarization during periods of high inflation and sudden shocks over the years, and studies in this area have maintained their continuity. Therefore, there is strong evidence in the literature that there is a relationship between dollarization and inflation or the exchange rate. Based on the fact that the relationship may change over time, time-varying Granger causality analysis was used in this study. Unit root, non-linear unit root, and CMS break unit root tests were applied in this context. In this study, which investigates the asymmetric causality relationship between the dollarization index obtained by the ratio of the total foreign currency deposits in the banking sector (including the deposits of natural domestic persons) to the M2 money supply and the USDTRY nominal exchange rate, the monthly data of 12.2012 – 10.2021 were used. According to the findings obtained from the analysis, there is causality between the exchange rate and dollarization in Turkey, but it is not continuous. Depending on the cyclical fluctuations, the pass-through effect from USDTRY to Dollarization index and from Dollarization index to USDTRY has been determined in different periods. When the causality is decomposed, it is concluded that the variable-time Granger causality results. At the same time, dollarization is the cause of USDTRY in political tensions and uncertainty cases. USDTRY is the cause of dollarization in financial tensions and economic uncertainty cases.

Downloads

Download data is not yet available.

References

  1. Ajide, K. B., Raheem, I. D., & Asongu, S. A. (2019). Dollarization and the “Unbundling” of Globalization in sub-Saharan Africa. Research in International Business and Finance, 47, 398-409.
  2. Akçay, O. C., Alper, C. E., & Karasulu, M. (1997). Currency substitution and exchange rate instability: The Turkish case. European Economic Review, 41(3-5), 827-835.
  3. Aninat, E. (2000). “Globalization as An Economic and Social Force: Opportunities and Risks from a Humanistic Perspective”, (Ed: José Antonio Ocampo, Stefano Zamagni, Ricardo Ffrench-Davis and Carlo Pietrobelli), Financial Globalization and The Emerging Economies, Santiago, Chile, 2000, pp: 25-30.
  4. Augiar M. (2005). Investment, devaluation and foreign currency exposure: The case of Mexico. Journal of Development Economics, 78(1), 95-113.
  5. Aysun, Ö. (2018). Dolarizasyon olgusu: Teorik bir inceleme ve Türkiye örneği. Ekonomi Politika ve Finans Araştırmaları Dergisi, 3(1), 101-113.
  6. Balcilar, M., Ozdemir, Z. A., & Shahbaz, M. (2019). On the time‐varying links between oil and gold: New insights from the rolling and recursive rolling approaches. International Journal of Finance & Economics, 24(3), 1047-1065.
  7. Baum, C. F., Hurn, S., & Otero, J. (2021). The dynamics of US industrial production: A time-varying Granger causality perspective. Econometrics and Statistics.
  8. Berke, B. (2009). Tam Dolarizasyonun Makroekonomik Politika Yansımaları. Elektronik Sosyal Bilimler Dergisi, 8(27), 126-147.
  9. Broock, W. A., Scheinkman, J. A., Dechert, W. D., & LeBaron, B. (1996). A test for independence based on the correlation dimension. Econometric reviews, 15(3), 197-235.
  10. Caglayan, M, Pham, T & Talavera, O 2019, 'Dollarization, pass-through, and domestic lending: evidence from Turkish banking', Emerging Markets Finance and Trade.
  11. Calvo, M. G., & Gramont, M. (1992). Currency substitution in developing countries: an introduction. IMF Working Paper 92/40: 3.
  12. Carranza L.J., Cayo J. M., ve Sanchez–Galdon J.E. (2003). Exchange rate volatility and economic performance in Peru: A firm level analysis. Emerging Markets Review, 4(4), 472-496.
  13. Clemente, J., Montañés, A., & Reyes, M. (1998). Testing for a unit root in variables with a double change in the mean. Economics letters, 59(2), 175-182.
  14. Corrado, G. (2008), "An open economy model with currency substitution and real dollarization", Journal of Economic Studies, Vol. 35 No. 1, pp. 69-93.
  15. Çetin, A. (2004). Enflasyon, Döviz Kuru Belirsizliği Ve Dolarizasyon Arasındaki Nedensellik İlişkisi: Türkiye Örneği. Iktisat Isletme ve Finans, 19(218), 99-110.
  16. Dalgic, H. C. (2018). Financial dollarization in emerging markets: An insurance arrangement. University of Mannheim, 248.
  17. Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057–1072.
  18. Dolado, J. J., & Lütkepohl, H. (1996). Making Wald tests work for cointegrated VAR systems. Econometric reviews, 15(4), 369-386.
  19. Emsen, H. S. (2022). Dolarizasyon Ve Borsa İlişkileri: Türkiye Üzerine İncelemeler. Uluslararası Ekonomi Siyaset İnsan ve Toplum Bilimleri Dergisi, 5(1), 29-48.
  20. Gujarati, D.N., & Porter, D. C. (2012). Temel Ekonometri, (Çeviri: Şenesen, Ü. ve Günlük Şenesen, G., 5. Baskı). Literatür Yayıncılık, İstanbul.
  21. Ize, A., & Parrado, E. (2002). Dollarization, monetary policy, and the pass-through.
  22. Ize, A., & Yeyati, E. L. (2006). Financial de-dollarization: is it for real?. In Financial dollarization (pp. 38-63). Palgrave Macmillan, London.
  23. Kal, S. H. (2019). 2003-2018 Dönemi Türk Ekonomisinde Dolarizasyon, Kısa Vadeli Sermaye Hareketleri ve Kur Oynaklığı İlişkisi. İstanbul İktisat Dergisi, 69(2), 357-377.
  24. Kapetanios, G., Shin, Y., & Snell, A. (2003). Testing for a unit root in the non-linear STAR framework. Journal of Econometrics, 112, 359–379.
  25. Karakaya, G. & Karoğlu, Y. (2020). Dolarizasyon olgusu:2008 finansal krizinden sonra Türkiye’de dolarizasyon incelemesi. Stratejik ve Sosyal Araştırmalar Dergisi, 4 (2) , 353-364. DOI: 10.30692/sisad.701696
  26. Kaya, E. & Açdoyuran, B. (2017) Finansal Dolarizasyon Unsurları Olarak Kredi Dolarizasyonu Ve Mevduat Dolarizasyonu İle Hisse Senedi Getirileri Arasındaki İlişki. Dicle Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 7(14), 325-344.
  27. Mengesha, L. G., & Holmes, M. J. (2013). Does dollarization alleviate or aggravate exchange rate volatility?. Journal of Economic Development, 38(2), 99.
  28. Özkul, G. (2021). Türkiye’de Finansal Dolarizasyonun Enflasyon Ve İstihdam İle Olan Etkileşimi. İşletme Ekonomi ve Yönetim Araştırmaları Dergisi, 4(1), 59-79.
  29. Park, H. ve Son, J. C. (2020). “Dollarization, Inflation and Foreign Exchange Markets: A Cross‐Country Analysis”. International Journal of Finance & Economics, 1-13.
  30. Phillips, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335–346.
  31. Serdengeçti, S. (2005). Dolarizasyon/Ters Dolarizasyon. Ekim, Eskişehir.
  32. Sever, E. (2012). Türkiye'de Dolarizasyon Süreci ve Döviz Kuru Belirsizliği İlişkisi. Sosyoekonomi, 17(17).
  33. Shi, S., Hurn, S., & Phillips, P. C. (2016). Causal Change Detection in Possibly Integrated Systems: Revisiting the Money-Income Relationship.
  34. Tan, B. K. , Mert, E. & Özdemir, Z. A. (2016). Kamu Yatırımları Ve Ekonomik Büyüme İlişkisine Bir Bakış: Türkiye, 1969-2003 . Dokuz Eylül Üniversitesi İktisadi İdari Bilimler Fakültesi Dergisi , 25 (1) , 25-39 .
  35. Taşseven, Ö., & ÇINAR, S. (2015). Türkiye’de borç dolarizasyonunun belirleyicileri ve makroekonomik göstergeler üzerindeki etkileri. Sosyal Bilimler Araştırma Dergisi, 4(2), 121.
  36. Terzi, H., & Serdar, K. U. R. T. (2007). Türkiye'de dolarizasyon sürecinde döviz kuru ve enflasyon ilişkisi. Ekonomik Yaklasim, 18(64), 1-22.
  37. The Central Bank Of The Republic Of Turkey (TCMB), Electronic Data Delivery System(Evds), Https://Evds2.Tcmb.Gov.Tr/
  38. Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1-2), 225-250.
  39. Tufaner, M. B. (2021). The Determinants of Dollarization in Turkey: An Econometric Analysis. Econder International Academic Journal, 5(2), 108-118.
  40. Uslu, N. Ç., & Kapkara, S. (2019). Kredi Dolarizasyonunun Belirleyicileri: Türkiye Örneği. Economics Literature, 1(2), 148-167.
  41. Yalçiner, K., & Mutlu, A. A. (2018). Küresel Kriz Sonrası Gelişmekte Olan Ülkelerde Dolarizasyon Süreci. Third Sector Social Economic Review, 53(2), 450-462.
  42. Yılmaz ve Uysal (2019). Türkiye’de dolarizasyon ve enflasyon ilişkisi. İktisadi İdari ve Siyasal Araştırmalar Dergisi, 4(10), 286-306.
  43. Yinusa, D. O. (2008). Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option. Journal of Policy Modeling, 30(5), 811-826.