Exchange exchange volatility and the relationship of dolarization an empirical analysis through Turkey

The transformation in the sectoral and regional composition of the international trade environment has greatly increased the importance of the exchange rate in both countries and international integrations. The markets have become a single market with the globally developing communication network and international arbitrage movements woven with information. In this respect, the analysis of exchange rate movements has become more important when considering the diversification of social and economic factors in the axis of globalizing financial dynamics. In this study, dollarization and volatility variables were calculated by taking the exchange rate, total foreign deposits and total deposits as monthly data for the period December 2012: August 2022 from the CBRT database, and the relationship between these variables was analyzed using econometric methods. For the dollarization and volatility variables, a break was determined according to the LWZ criterion by the structural break test, and the break dates for each variable were May 2016 and May 2021, respectively. LS-LM Unit Root Test and ADF Unit Root Test with Structural Breaks were applied to the same variables, and according to the test results, it was determined that the variables were stationary at the level. For these variables the Granger causality test was also applied and a two-way Granger causality relationship was determined between the variables. In addition, the results of the regression analysis showed that volatility had a significant effect on dollarization. Additionally, the regression model results showed that there was a significant increase in the dollarization level in March 2018. Keywords: Exchange rate, Dollarization, Currency substitution; Volatility