The effect of Central Bank credibility on credit default swaps: The case of Türkiye

This study investigates the effects of central bank credibility on credit default swaps in the Turkish case. Using monthly data between 2008 and 2022, the study uses 5-year credit default swap premium, central bank credibility index, basket exchange rate, external debt stock and global risk index data. First of all, in order to determine the stationarity levels of the series used in the study, conventional unit root tests, unit root tests with single and double structural breaks and Fourier unit root tests were applied. After determining the stationarity levels of the series, the long-run cointegration relationship between the variables was tested with the non-linear ARDL model. The findings indicate that positive credit shocks have a negative impact on credit default swap, exchange rate shocks have a positive impact on credit default swaps, and global risk index shocks have a positive impact on credit default swaps. Within the framework of the findings, improving the institutional structure of monetary policy in a way to support central bank credibility can be put forward as a policy recommendation to reduce the country risk premium. Keywords: Credit default swaps, Central bank credibility, Unit root tests, Nonlinear ARDL model.