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Open Access Journal Article

Dynamics of deposit dollarization in Turkey

by A. Yasemin Yalta a orcid  and  A. Talha Yalta b,* orcid
a
Department of Economics, Hacettepe University, Ankara, Turkey
b
Department of Economics, TOBB University of Economics and Technology, Ankara, Turkey
*
Author to whom correspondence should be addressed.
JEA  2024, 56; 3(2), 56; https://doi.org/10.58567/jea03020004
Received: 26 June 2023 / Accepted: 22 July 2023 / Published Online: 15 June 2024
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Abstract

Deposit dollarization in Turkey has been on the rise, reaching record levels in 2022. This was caused by the worsening macroeconomic fundamentals along with the transition to the presidential system in 2018 and the associated deviation from the monetary policy stance afterward. The unique case of Turkey presents an excellent natural experiment to explore the dynamics of deposit dollarization and how it is affected by the changes in the institutional structure as well as various social, economic, and financial shocks in a relatively short time. This study examines the time varying reactions of deposit dollarization for the period between 2013 and 2022 based on rolling window maximum entropy bootstrap estimates. Our findings reveal that all the model variables had significant and sometimes asymmetric effects on deposit dollarization during the different stages of this turbulent period. In particular, we observe diminishing effects of real exchange rate, policy credibility and consumer confidence over time. The findings provide ample new evidence regarding the dynamics of deposit dollarization in general, and how it is affected by loss of monetary policy credibility.

Keywords: Dollarization; maximum entropy bootstrap; time varying analysis; Turkey;
Copyright: © 2024 by Yalta and Yalta. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.