Abstract:

Any prolonged pressure on the national currency can have serious consequences, especially for emerging economies that are prone to external shocks. It is important to know the timing and intensity of such pressures in order to avoid any crisis situation. In this context, especially in economies that follow the managed floating exchange rate system, the foreign exchange market pressure index is used in the literature in order to accurately determine the level of pressure on the national currency which measured by the weighted sum of changes in exchange rates, foreign exchange reserves and/or interest rates. In this study, the relationship between the foreign exchange market pressure index, which signals a possible currency crisis in the Turkish economy in the period of 2005:12-2021:5, and dollarization, which is expressed as the intensive use of foreign currency as both a payment instrument and a store of value, is examined in the Fourier field. For the dollarization variable, the ratio of exchange deposit accounts to the M2 money supply is taken as a basis, and for the exchange market pressure index, in parallel with the studies in the literature, the weighted sum of the change in the nominal exchange rate (USD/Turkish Lira) and the CBRT gross foreign exchange reserves (Million USD) is used. The monthly data of the said variables were obtained from the CBRT official database. As a result of the empirical analysis, it has been concluded that there is a process that feeds each other between the foreign exchange market pressure index and dollarization.

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