Econometric analysis of factors affecting net errors and omissions in Turkey

The Net Errors and Omissions (NEO), which is the balancing item of the Balance of Payments Table, contains factors that cannot be recorded for various reasons. What are these factors that lead to NEO? Is NEO a problem for the Turkish economy? Is Turkey's NEO sustainable? These are important questions whose answers have effects on expectations and macro variables in the economy, especially the exchange rate, current balance, external debt, gross domestic product and they constitute the main motivation of the thesis. It has been observed that the average of Turkey's NEO is close to zero between the years 2013-2023, which is the analysis period, and that it follows a fluctuating course in the direction of entry and exit, and the wave size can reach high levels. In order to determine the factors that lead to high fluctuations in NEO, ARDL and NARDL models have been created in addition to causality analyses. The analyses have shown that the high fluctuations in NEO in the examined period are mainly capital and financial account-based transactions. In this context, the effect of the household's foreign currency cash balance, which we define as "under the pillow" on the NHN comes to the fore. It is observed that there is a statistically significant, positive and asymmetric relationship between the change in this variable and the NEO. In Türkiye, where holding foreign currency as a savings and inflation protection tool is widespread, withdrawals from the pillow or entries from the pillow to the banking system are important determinants of the NEO. In periods when the perception of systematic risk increases, there may be deposit withdrawals from the banking system. In periods of stability when the perception of systematic risk decreases, the opposite of this movement occurs and the household puts the foreign currency banknotes under the pillow back into the banking system as deposits. The estimated coefficients show that the returns from the pillow to the system are decreasing.