Measuring Sovereign Risk in Turkey

Improved macroeconomic conditions and changes to the asset-liability structure on Turkish balance sheets since the 2001 crisis have improved Turkey''s overall sovereign risk profile. Nonetheless, the country remains subject to bouts of volatility, as evidenced most recently in the May/June 2006 market turbulence. This paper examines these changes in Turkey''s risk profile using the Contingent Claims Approach (CCA), to quantify the evolution of Turkey''s sovereign risk, relate risk indicators to market prices of risk, and conduct scenario analyses to assess the effects of potential market volatility and policy adjustments on key risk indicators.Public debt;Credit risk;Economic indicators;Economic models;domestic debt, exchange rate, external debt, foreign exchange, forward exchange rate, forward exchange, spot exchange rate, exchange risk, foreign debt, currency debt, foreign exchange risk, sovereign default, sovereign debt, debt reduction, short-term debt, foreign currency debt, debt management, debt holders, stock of debt, long-term debt, net debt, domestic currency, exchange reserves, external debt reduction, reserve holdings, exchange risks, debt statistics, maturity structure of debt, debt ratios, central bank, debt management policy, debt default, foreign exchange risks, exchange rates, exchange rate depreciation, foreign exchange reserves, currency swaps, public sector debt, debt servicing, debt management strategy, sovereign defaults, debt obligations