Abstract
This study investigates the determinants of deposit dollarization within 81 cities of Turkey for the period of 2007:Q4 – 2019:Q1. Within this scope, exchange rate, CDS premiums, city inflation, city export and import are used to model deposit dollarization. As an econometric approach both fixed and random effect panel data methods are implemented using relevant libraries in Python programming language to measure the impact of independent variables. As a result, all independent variables have statistically significant and positive effect on deposit dollarization within cities. When evaluated according to the effect sizes, inflation, import, export, exchange rate and CDS premiums are considered to be determinant, respectively, on deposit dollarization in Turkish cities. On the other hand, when the two models are tested with the Hausman test, which has a null hypothesis “random effect estimator is true”, it is concluded that the random effect model is more suitable for our model. In addition, to see if citizens living abroad that have registered in the cities have an impact on the dollarization, Pearson correlation is conducted and it is found that there is relatively strong correlation between the number of expatriate citizens and deposit dollarization in the city.
Highlights
The issue of dollarization has become a questioned issue in the field of economics, with the globalization trend that started after the 1970s, especially with the collapse of the Bretton Woods fixed exchange rate system
The Central Bank of the Republic of Turkey (CBRT) started to announce the exchange rates on a daily basis as of May 1, 1981, and subsequently, with the Decision No 30 on the Protection of the Value of Turkish Currency (PVTC), which came into force on July 7, 1984, the exchange barriers were removed to a large extent
When evaluated according to effect sizes, it is evaluated that inflation, import, export, exchange rate and CDS premiums are determinative on dollarization, respectively
Summary
The issue of dollarization has become a questioned issue in the field of economics, with the globalization trend that started after the 1970s, especially with the collapse of the Bretton Woods fixed exchange rate system. As of this date, capital flows to the countries and the harmonization of international financial markets accelerated. In Turkey, with the stabilization measures implemented in the 1980s, liberalization steps were taken in the economy, and financial markets were deregulated gradually by removing exchange rate controls. When evaluated according to effect sizes, it is found that inflation, import, export, exchange rate and CDS premiums play important roles on deposit dollarization in provinces, respectively. A relatively strong correlation was found between the fixed term calculated for each province in the fixed-effect method and the expatriate citizens in the provinces, that are registered in the province population
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