The relationship of currency volatility, inflation, anddollarization, case of Turkey

Instability in the economy is a problem faced by all countries. Therefore, governments strive to move away from instability and provide an economic environment symbolized by confidence through monetary and financial policies managed by the Central Bank. In this context, Turkey's stance in the shadow of the economic crises experienced on a global scale in recent years and its struggle with inflation that rose from single digits to double digits has attracted attention. At the same time, the variability in the exchange rate and the country's attitude against the possibility of dollarization phenomenon has been an interesting topic. Based on this, in this study; the relationship between exchange rate, inflation and dollarization was investigated within the scope of Turkish economy. At the same time, while researching the mentioned relationship, also mentioned CBRT's policies followed between 2000-2022 years. In this context, Turkey's economy was examined with monthly data covering the period from December 2012 to March 2023. In the econometric analysis section of the research, the stationarity of variables was tested with Zivot and Andrews, Lee and Strazicich and Narayan and Poop unit root tests. Then Hatemi-J (2008) and Maki (2012) co-integration tests were used to examine the relationship. Finally, FMOLS regression method was used for long-term estimates. As a result of the analysis, it was found that there was a long-term co-integration relationship between variables and a two-way causality relationship was determined. This study was conducted to examine the relationship between variables considering current data and to evaluate their interaction with monetary policy. In this way, it offers a new perspective to the literature on this subject. The results of this study provide important information about the nature of the relationship between study variables. In addition, researchers who want to learn more about this topic are advised to research by comparing the mentioned relationship between many countries with panel analysis. Thus, how this relationship changes in different contexts can be revealed and more reliable results can be obtained. Keywords: Dollarization,