The Analysis of the Short-term Capital Movements by Using the VAR Model: The Case of Turkey (original) (raw)

The effects of capital inflows on Turkish macroeconomic performance

Empirica, 2015

Capital inflows are important factor affecting macroeconomic performance, such as the real exchange rate, interest rates, output, and price level. However, the components of capital inflows are also important. Capital inflows in the forms of portfolio investment liabilities, foreign direct investment, and other investment liabilities may affect these macroeconomic variables differently. The main focus of this study is to analyze the behavior of key macroeconomic variables in response to the different components of capital inflow shocks for Turkey using monthly data from 2000:1 to 2012:12 by utilizing a vector autoregression model.

The Impact of Capital Flows on Current Account Deficit for Turkey

Journal of Life Economics

The impact of capital flows on macroeconomic variables is widely studied in applied literature. In this context, this paper aims to analyze the impact of short-term capital flows and foreign direct investment on current account deficit for Turkey by using quarterly data for the time period 1998-2015. We find out a positive and significant relationship between capital flows and current account deficit and negative insignificant relationship between capital flows and foreign direct investment. We use vector autoregression (VAR) model and impulse responses to analyze dynamics between variables.

Monetary policy implications of short-term capital flows in Turkey

Empirica

The advent of global financial crisis in 2008, unleashed volatile short term capital flows to the emerging markets. This has forced many central banks in the developing world to adopt innovative policy measures to address concerns related to financial instability caused by the volatile nature of capital flows. In 2010 Turkish Central Bank included financial stability in addition to price stability as one of primary goals of its monetary policy. Several macro-prudential measures had been taken and 'corridor system' of setting the short-term policy rates had been introduced. In this paper, we have estimated an extended Taylor rule, using error correction model, to examine the impact of global financial factors in impacting the setting up of the policy rate in the pre and post 2010 periods in Turkey. It has been found that in the post-2010 period, global financial factors and monetary policy stance of the core economy, USA, have become major factor(s) in shaping up the monetary policy. Particularly our results of variance decomposition show that global financial indicators such as, VIX and EMBI have taken prominence in the setting of the short-term policy rate. This has not only made the domestic monetary more dependent on external factors but has also made pro-cyclical in nature.

The link between financial capital movements and the exchange rate in Turkey

Eastern Journal of European Studies, 2019

This paper aims to analyze the short and long run impacts of financial capital inflows on the exchange rate in Turkey during the implementation of inflation targeting regime. Accordingly, the impact of financial capital flows on the exchange rate has been examined by using the ARDL model for the period between 2003 and 2018. Thus, our research contributes to the existing literature by examining the impact of capital inflows on the exchange rate in the short and long run separately. Besides, we consider the era of inflation targeting regime while analyzing the impact of capital flows on the exchange rate. Econometric results show that financial capital inflows have the potential to fluctuate the exchange rates in different directions in the short and in the long term. Thus, exchange rate volatility associated with capital movements have a significant potential to put the Turkish inflation-targeting regime in trouble. Therefore, capital inflows to Turkey should effectively be managed ...

Capital Flows to Turkey: Multivariate VAR Approach

The gradual raising of capital flows in developing countries has made developing countries more interesting to investigate over the last 20 years. Turkey is a typical example of a developing country that achieved high growth rate in the foreign capital attraction, especially throughout the last decade. We aim to investigate the linkage between foreign direct investment (FDI), foreign portfolio investment (FPI) and foreign bank penetration (FBP), while controlling DGDP and 2001 financial crisis in Turkey using quarterly data from 1994Q1 to 2009Q4 in this paper. In order to obtain information about causal relationship among the time series variables, VAR based block exogeneity wald test is performed. The finding from this test indicates that; changes in DFBP significantly lead to changes in DFDI; there is also unilateral causality which runs from FPI to DFBP at 5% level. Using the variance decomposition technique, we also find that DFDI and FPI have little explanatory power for the evolution of DFBP in Turkey; the contribution of DFBP to the variability of DFDI is more than that of FPI; the contribution of DFDI to FPI variability ranges between 0.000% and 7.611% throughout the 12 quarter periods whilst the contribution of DFBP to FPI variability ranges between 0.000% and 9.122%.

Exchange Rate Volatility and Comparative Interest Rates: Analyzing the Determinants of Capital Flows and Resident Dollarization in Turkey

Article, 2020

In this study, the effects of the volatility shocks in the exchange rate on the resident dollarization and the net capital flows are discussed. The volatility of the exchange rate is derived using EGARCH model. ARDL method is used to model the effects of foreign exchange rate volatility on capital flows and dollarization in the long and short term. Additionally, the interest rate series of the relevant foreign currencies have been added to the model to represent the influence of the changes in the interest rate policies in this context. Findings indicate that, in terms of influencing capital flows and resident dollarization, interest rate policies have a significant effect in the short-run while having an even stronger effect in the long run. Additionally, exchange rate shocks have been found to have a limited effect on capital outflows and resident dollarization. Results suggest that the decision making process of investors and residents is not impulsive and even during the periods of excessive exchange rate volatility, the capital outflows and the resident dollarization are significantly more affected by interest rate changes than exchange rate shocks.

Capital flows and exchange rate volatility: experience of emerging economies

Indian Economic Review, 2018

In the recent past, there has been a significant rise in the cross-border capital flows and a large chunk of it is being attracted by emerging economies. This poses an important question, whether the capital flows, especially foreign portfolio flows, are responsible for the increasing volatility of exchange rate in emerging economies. This study is an attempt to answer this question. To this end, we estimated a Panel Vector Autoregression model using quarterly data of ten emerging economies for the period 1997Q1-2017Q1. The evidence from impulse response indicates that exchange rate volatility significantly increases in response to the shocks in portfolio capital flows than to shocks in foreign direct inflows. The forecast error variance decomposition also suggests that shocks to foreign portfolio investment flows exert significant impact on the exchange rate volatility. The foreign portfolio flows are responsible for more than 7% of the variations in exchange rate volatility, while current account balance, stock prices and interest rate together explain only around 4% of the variations in exchange rate volatility.

Fiscal imbalances, capital inflows, and the real exchange rate: The case of Turkey

European Economic Review, 1997

This paper examines the links between fiscal policy, capital inflows and the real exchange rate in Turkey since the late 1980s. The first part provides an overview of recent macroeconomic developments in Turkey. The second part estimates a vector autoregression model linking government spending, interest rate differentials,'capital inflows, and the temporary component of the real exchange rate-estimated using three alternative techniques. Positive shocks to government spending and capital inflows lead to a real appreciation, whereas positive shocks to the uncovered interest rate differential lead to a capital inflow and an appreciation of the real exchange rate. Our findings highlight the role of fiscal adjustment for restoring macroeconomic stability in Turkey. 0 1997 Elsevier Science B.V.

Volatility Spillovers from the International Capital Inflows to Economic Growth in Turkey

SSRN Electronic Journal, 2013

___________________________________________________________________ This paper empirically investigates the volatility interactions between the international capital inflows to Turkey and Turkish economic growth using the post-financial-liberalization era data. With an Extended Constant Conditional Correlation GARCH model, it is shown that there are volatility spillovers from the capital inflows to growth in Turkey. Some earlier studies in literature have already established a positive relationship between the capital inflows and economic growth in Turkey. According to their results, as the mean value of capital inflows to Turkey increases, so does the conditional mean value of Turkish economic growth. This study is important for it shows that as the volatility of capital inflows to Turkey increases, so does the volatility of Turkish economic growth.

The Effect of Hot Money Flow on Pre-Crisis Indicators of Current Accounts and Real Sectors in Turkish Economy

International Journal of Business and Social Research

We investigate the impact of the hot money movements on current account and real sector leading crisis indicators under VAR (Vector Autoregressive) framework using quarterly data for a long period of 1991-2014. Our findings show that hot money movements have negative impact on current account deficit and foreign trade deficit pre-crisis indicators. We further show that they lead to instability in growth and inflation pre-crisis indicators.