Exchange Rate Movements, Inflation Expectations, and Currency Substitution in Turkey

• Author(s): Mr.Fabio Scacciavillani,
• Publisher: International Monetary Fund
• Pages: 21
• ISBN_10: 1451853416
  ISBN_13: 9781451853414
  
• Language: en
• Categories: Business & Economics / Money & Monetary Policy , Business & Economics / Foreign Exchange , Business & Economics / Inflation ,

Description:... This paper contains an empirical analysis of currency substitution in Turkey: a simple relationship between the share of foreign currency holdings in M2X on one side and movements in the exchange rate or inflation on the other is derived from a two-stage portfolio choice model. This relationship is estimated by band spectrum regression which allows to remove from the data the short-term cyclical components. The results show that the relationship between currency substitution depends mainly on long-term movements in the exchange rate, while the effect of inflation on currency substitution is not statistically significant.