Determinants of currency crises in emerging: Markets the case of Turkey

This paper investigates possible determinants of currency crises in Turkey. We use three different techniques-namely, the signaling approach, structural model, and Markov switching model with monthly data for the period 1992-2004. The results show that money market pressure index, real-sector confidence index, and public-sector variables are significant in explaining currency crises. Hence, one can say that banking crises lead to currency crises. Central banks' real-sector confidence index may be a good leading indicator for currency crises. Copyright © 2008 M.E. Sharpe, Inc. All rights reserved.International Monetary FundHigh and volatile inflation in Turkey, accompanied by volatile economic growth and several financial crises, have been characteristic of the Turkish economy for the past two decades. Various stabilization programs supported by the International Monetary Fund (IMF) were implemented until the end of 2000, with unsuccessful results (see Evrensel 2004). Increases in government spending and public debt are also characteristic of this period, followed by high real interest rates to attract foreign and domestic funds (see Alper and Onis 2003). -