Research Article

DOI :10.26650/ISTJECON2021-1191952   IUP :10.26650/ISTJECON2021-1191952    Full Text (PDF)

Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye

Murat ErenSelim BaşarBengü Tosun

In this study, developed from the importance of the deformation caused by dollarization in developing countries, the effect of risk level on financial dollarization is examined. In the research conducted for Turkey, one of the riskiest countries in the world according to the five-year Credit Default Swaps (CDS) premium values as of the date of the study, weekly data between the period of December 14, 2012 and February 11, 2022 are used to determine the effect of the risk level for short periods. The relationship between variables is examined using the Fourier Cointegration Test (FSHIN) cointegration test and the Dynamic Least Squares (DOLS) estimator. The findings show that country risk, exchange rate, and domestic currency deposit interest rates affect financial dollarization positively, while foreign currency deposit interest rates affect it negatively. The study carried out for Turkey sheds light on the factors that should be considered in high-risk countries facing the dollarization problem and presents policy recommendations for developing countries in this direction.

JEL Classification : C32 , E43 , E52 , E58

PDF View


  • Adeniji, S. (2013). Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach (MPRA Paper No. 52551). google scholar
  • Aigheyisi, O. S., & Isikhuemen, A. H. (2019). Determinants of Currency Substitution in Nigeria. Empirical Economics Review, 9(1), 89-101. google scholar
  • Alesina, A., & Barro, R. J. (2001). Dollarization. American Economic Review, 91(2), 381-385. https:// google scholar
  • Becker, R., Enders, W., & Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks. Journal of Time Series Analysis, 27(3), 381-409. https://doi. org/10.1111/j.1467-9892.2006.00478.x google scholar
  • Bednarik, R. (2007). Loan dollarization in V4 countries (MPRA Paper No. 14695). google scholar
  • Broda, C., & Yeyati E. L. (2006). Endogenous deposit dollarization. Journal of Money, Credit and Banking, 38(4), 963-988. google scholar
  • Burnside, C., Eichenbaum, M., & Rebelo S. (2001). Hedging and financial fragility in fixed exchange rate regimes. European Economic Review, 45(7), 1151-1193. google scholar
  • Calvo, G. (2002). On dollarization. Economics of Transition. 10(2), 393-403. https://doi. org/10.1111/1468-0351.00117 google scholar
  • Calvo, G., & Gramont, C. V. (1992). Currency Substitution in Developing Countries: An Introduction. IMF Working Papers 92/40. google scholar
  • CBRT (2022). Electronic Data Delivery System of the Central Bank of the Republic of Turkey (CBRT). Retrieved February 11, 2022, from google scholar
  • Civcir, I. (2005). Dollarization and its Long-run Determinants in Turkey. Money and Finance in the Middle East: Missed Oportunities or Future Prospects?, 6, 201-232. 10.1016/S1094-5334(05)06010-3 google scholar
  • Cowan, K., & Do, Q-T. (2003). Financial dollarization and central bank credibility (The World Bank Policy Research Working Paper Series No. 3082). google scholar
  • De Nicolo, G., Honohan, P., & Ize, A. (2005). Dollarization of bank deposits: Causes and consequences. Journal of Banking & Finance, 29(7), 1697-1727. jbankfin.2004.06.033 google scholar
  • Domaç, I., & Peria, M. S. M. (2003). Banking crises and exchange rate regimes: is there a link? Journal of International Economics, 61(1), 41-72. google scholar
  • Dumrul, C. (2010). Türk Ekonomisinde Para İkamesinin Belirleyicilerinin Sınır Testi Yaklaşımı ile Eş-Bütünleşme Analizi. Erciyes Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 35, 199-231. google scholar
  • Fabris, N., & Vujanovic, N. (2017). The Impact of Financial Dollarization on Inflation Targeting: Empirical Evidence from Serbia. Journal of Central Banking Theory and Practice, 6(2), 23-43. google scholar
  • Hair, J. F., Black, W C, Babin B. J., & Anderson R. E. (2014). Multivariate Data Analysis. USA: Pearson Education Limited. google scholar
  • Harvey, D. I., Leybourne, S. J., & Xiao, B. (2008). A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics & Econometrics, 12(3), 1-24. https://doi. org/10.2202/1558-3708.1582 google scholar
  • Hekim, D. (2008). Para ikamesi histerisi: Türkiye örneği. Osmangazi Üniversitesi İİBF Dergisi, 3(1), 27-43. google scholar
  • Honohan, P., & Shi, A. (2001). Deposit dollarization and the financial sector in emerging economies (The World Bank Policy Research, Working Paper Series No. 2748). https://doi. org/10.1596/1813-9450-2748 google scholar
  • IADB (2004). Unlocking credit: The quest for deep and stable bank lending Economic and Social Progress in Latin America 2005 Report. Washington: Inter American Development Bank. google scholar
  • Ize, A., & Yeyati, E. L. (1998). Dollarization of financial intermediation: Causes and policy implications (IMF Working Papers No. 98/28). google scholar
  • Ize, A., & Yeyati, E. L. (2003). Financial dollarization. Journal of International Economics, 59(2), 323-347. google scholar
  • Jeanne, O. (2003). Why do emerging market economies borrow in foreign currency? (IMF Workig Papers No. 03/177). google scholar
  • Katyaayun, U., & Krause, A. (2017). Credit Ratings and Credit Default Swaps During the European Sovereign Debt Crisis (SSRN Paper No.3078630). google scholar
  • Komárek, L., & Melecky, M. (2003). Currency substitution in a transitional economy with an application to the Czech Republic. Eastern European Economics, 41(4), 72-99. 1080/00128775.2003.11041054 google scholar
  • Kwiatkowski, D., Phillips, P.C., Schmidt, P. & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of econometrics, 54(1-3), 159-178. google scholar
  • Lay, S. H., Kakinaka, M., & Kotani, K. (2012). Exchange rate movements in a dollarized economy: The case of Cambodia. ASEAN Economic Bulletin, 29(1), 65-78. ase.2012.0005 google scholar
  • Neanidis, K. C., & Savva, C. S. (2009). Financial dollarization: Short-run determinants in transition economies. Journal of Banking & Finance, 33(10), 1860-1873. jbankfin.2009.04.017 google scholar
  • Olayungbo, D. O., & Ajuwon, K. T. (2015). Dollarization, inflation and interest rate in Nigeria. CBN Journal of Applied Statistics, 6(1), 241-261. google scholar
  • Ponomarenko, A., Solovyeva, A., & Vasilieva, E. (2013). Financial dollarization in Russia: causes and consequences. Macroeconomics and Finance in Emerging Market Economies, 6(2), 221-243. google scholar
  • Rodríguez, I. M., Dandapani, K., & Lawrence, E. R. (2019). Measuring Sovereign Risk: Are CDS Spreads Better than Sovereign Credit Ratings? Financial Management, 48(1):229-256. https:// google scholar
  • Rosenberg, C. B., & Tirpak, M. (2008). Determinants of foreign currency borrowing in the new member states of the EU (IMF Working Papers No. 08/173). Issues/2016/12/31/Determinants-of-Foreign-Currency-Borrowing-in-the-New-Member-States-of-the-EU-22148 google scholar
  • Savastano, M. A. (1996). Dollarization in Latin America: Recent evidence and some policy issues (IMF Working Papers No. 96/4). Dollarization-in-Latin-America-Recent-Evidence-and-Some-Policy-Issues-1947 google scholar
  • Serdengeçti, S. (2005). Dolarizasyon/Ters Dolarizasyon [TCMB Presentation]. Retrieved November 10, 2022, from google scholar
  • 91da6db0cc6e/sunumeskisehir.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-5b404bcd-6e72-415d-a656-91da6db0cc6e-m3fBeXh google scholar
  • Shin, Y. (1994). A residual-based test of the null of cointegration against the alternative of no cointegration. Econometric Theory, 10(1), 91-115. google scholar
  • Srithilat, K., Sun, G., Chanthanivong, T., & Thavisay, M. (2018). The relationship between inflation, exchange rate, and currency substitution: Evidence from panel vector error correction model approach. International Journal of Economics and Financial Issues, 8(2), 79-84. google scholar
  • Tsong, C-C., Lee, C-F., Tsai, L-J., & Hu, T-C. (2016). The Fourier approximation and testing for the null of cointegration. Empirical Economics, 51(3), 1085-1113. google scholar
  • Vieira, F. A., Holland, M., & Resend, M. F. (2012). Financial dollarization and systemic risks: New empirical evidence. Journal of International Money and Finance, 31(6), 1695-1714. https://doi. org/10.1016/j.jimonfin.2012.03.007 google scholar
  • Webb, R., & Armas, A. (2004). Monetary policy in a highly dollarized economy: the case of Peru. In P. C. Ugolini, A. Schaechter, & M. R. Stone, (Eds.), Challenges to Central Banking from Globalized Financial Systems (pp. 15-37). Washington: IMF Publication Services. google scholar
  • WGB (2022). Sovereign CDS. Retrieved February 11, 2022, from http://www.worldgovernmentbonds. com/sovereign-cds/ google scholar
  • Yaz, D. A. (2020). Antik Çağdan Geleceğe Para. İstanbul: Timaş Yayınevi. google scholar
  • Yeyati, E. L. (2003). Financial Dollarization: Where Do We Stand? In: Conference on Financial Dedollarization: Policy Options. IDB/World Bank. google scholar
  • Yeyati, E. L. (2006). Financial dollarization: evaluating the consequences. Economic Policy, 21(45), 62118. google scholar
  • Yeyati, E. L., Sturzenegger, F., & Tella, D. (2002). Dollarization: A Primer. In E. Yeyati, & F. Sturzenegger (Eds.), Dollarization Debates and Policy Alternatives. London:The MIT Press. google scholar
  • Yılancı, V. (2017). Petrol Fiyatları ile Ekonomik Büyüme Arasındaki İlişkinin İncelenmesi: Fourier Yaklaşımı. Ekonometri ve Istatistik Dergisi, (27), 51-57. google scholar
  • Yinusa, D. O. (2009). Macroeconomic fluctuations and deposit dollarization in sub-Saharan Africa: evidence from panel data (MPRA Paper No. 16259). google scholar


Copy and paste a formatted citation or use one of the options to export in your chosen format



Eren, M., Başar, S., & Tosun, B. (2022). Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye. Istanbul Journal of Economics, 72(2), 625-651.


Eren M, Başar S, Tosun B. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye. Istanbul Journal of Economics. 2022;72(2):625-651.


Eren, M.; Başar, S.; Tosun, B. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye. Istanbul Journal of Economics, [Publisher Location], v. 72, n. 2, p. 625-651, 2022.

Chicago: Author-Date Style

Eren, Murat, and Selim Başar and Bengü Tosun. 2022. “Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye.” Istanbul Journal of Economics 72, no. 2: 625-651.

Chicago: Humanities Style

Eren, Murat, and Selim Başar and Bengü Tosun. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye.” Istanbul Journal of Economics 72, no. 2 (May. 2024): 625-651.

Harvard: Australian Style

Eren, M & Başar, S & Tosun, B 2022, 'Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye', Istanbul Journal of Economics, vol. 72, no. 2, pp. 625-651, viewed 18 May. 2024,

Harvard: Author-Date Style

Eren, M. and Başar, S. and Tosun, B. (2022) ‘Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye’, Istanbul Journal of Economics, 72(2), pp. 625-651. (18 May. 2024).


Eren, Murat, and Selim Başar and Bengü Tosun. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye.” Istanbul Journal of Economics, vol. 72, no. 2, 2022, pp. 625-651. [Database Container],


Eren M, Başar S, Tosun B. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye. Istanbul Journal of Economics [Internet]. 18 May. 2024 [cited 18 May. 2024];72(2):625-651. Available from: doi: 10.26650/ISTJECON2021-1191952


Eren, Murat - Başar, Selim - Tosun, Bengü. Dollarization and Risk Premium in a Risky Country: An Investigation on Turkiye”. Istanbul Journal of Economics 72/2 (May. 2024): 625-651.


Published Online30.12.2022


Attribution-NonCommercial (CC BY-NC)

This license lets others remix, tweak, and build upon your work non-commercially, and although their new works must also acknowledge you and be non-commercial, they don’t have to license their derivative works on the same terms.


Istanbul University Press aims to contribute to the dissemination of ever growing scientific knowledge through publication of high quality scientific journals and books in accordance with the international publishing standards and ethics. Istanbul University Press follows an open access, non-commercial, scholarly publishing.