Abstract:

Dollarization is the process by which a country decides to use two currencies: the local currency and a stronger one, and usually occurs in countries with a history of high inflation and exchange rate volatility. The dollarization process started in the Turkish economy in the late 1960s and early 1970s and became permanent after the 1994 and 2001 crises. Although it decreased to a great extent as a result of the political and economic stability that occurred in the 2002 - 2013 period, it reached its peak especially after the exchange rate attack in August 2018. The aim of this study is to analyze the macroeconomic and financial variables that affect and direct the dollarization process, which is a chronic problem in the Turkish economy, with Vector Autoregression model. On December 21, 2021, the Currency Protected Deposit system, which is still used, was introduced. Therefore, the year 2022 is excluded from the study. The model is significant. Lagged values of Banking Sector Credit Volume, Foreign Trade Balance, Manufacturing Industry Capacity Utilization Rate, Real Exchange Rate, USD/Turkish Lira Rate, US 10-Year Bond Rate and Non-Residents' Stock Portfolio variables are significant and affect the dollarization process in the Turkish economy.

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