Throughout the 1980s and 1990s, Turkey relied heavily on foreign investment AU64: The URL http://en.wikipedia.org/wiki/Foreign_direct_investment has been redirected to https://en.wikipedia.org/wiki/Foreign_direct_investment. Please verify the URL. for economic growth AU65: The URL http://en.wikipedia.org/wiki/Economic_growth has been redirected to https://en.wikipedia.org/wiki/Economic_growth. Please verify the URL. , with trade above 40% of GNP. The Turkish government AU66: The URL http://en.wikipedia.org/wiki/Politics_of_Turkey has been redirected to https://en.wikipedia.org/wiki/Politics_of_Turkey. Please verify the URL. and banking systems lacked the financial means to support meaningful economic growth. The government was already running enormous budget deficits AU67: The URL http://en.wikipedia.org/wiki/Budget_deficit has been redirected to https://en.wikipedia.org/wiki/Budget_deficit. Please verify the URL. , and one of the ways it managed to sustain these was by selling huge quantities of high-interest bonds to Turkish banks. Continuing inflation (likely a result of the enormous flow of foreign capital into Turkey) meant that the government could avoid defaulting on the bonds in the short term. As a consequence, Turkish banks came to rely on these high-yield bonds AU68: The URL http://en.wikipedia.org/wiki/High-yield_debt has been redirected to https://en.wikipedia.org/wiki/High-yield_debt. Please verify the URL. as a primary investment. On February 19, 2001, Prime Minister Ecevit emerged from a meeting with President Sezer saying, “This is a serious crisis.” This underscored financial and political instability and led to further panic in the markets. Stocks plummeted and the interest rate AU69: The URL http://en.wikipedia.org/wiki/Interest_rate has been redirected to https://en.wikipedia.org/wiki/Interest_rate. Please verify the URL. reached 3,000%. Large quantities of Turkish lira AU70: The URL http://en.wikipedia.org/wiki/Turkish_lira has been redirected to https://en.wikipedia.org/wiki/Turkish_lira. Please verify the URL. were exchanged for U.S. dollars AU71: The URL http://en.wikipedia.org/wiki/United_States_dollar has been redirected to https://en.wikipedia.org/wiki/United_States_dollar. Please verify the URL. or euro, causing the Turkish central bank AU72: The URL http://en.wikipedia.org/wiki/Central_Bank_of_the_Republic_of_Turkey has been redirected to https://en.wikipedia.org/wiki/Central_Bank_of_the_Republic_of_Turkey. Please verify the URL. to lose $5 billion of its reserves. The crash triggered even more economic turmoil. In the first eight months of 2001, 14,875 jobs were lost, the dollar rose to 1,500,000 liras, and income inequality AU73: The URL http://en.wikipedia.org/wiki/Income_inequality has been redirected to https://en.wikipedia.org/wiki/Income_inequality. Please verify the URL. had risen from its already high level.
Published in Chapter:
KLR Approach as an Early Warning Indicator of Turkish Currency and Banking Crisis in 2000 and 2001
Filiz Eryılmaz (Uludağ University, Turkey)
Copyright: © 2016
|Pages: 18
DOI: 10.4018/978-1-4666-9484-2.ch011
Abstract
International organizations as private sector institutions started to develop Early Warning System [EWS] models aiming to anticipate whether and when individual countries can collide with a financial crisis. EWS models can be made most useful to help sustain global growth and maintain financial stability, especially in light of the lessons learned from the current and past crises. This paper proposes Early Warning Systems (EWS) for Turkish Currency and Banking Crisis in 2000 and 2001. To that end “KLR model” or “signaling window” approach developed by Kaminski, Lorezondo and Reinhart (1998) is testified in the empirical part of this research and applied to a sample of Turkey macroeconomic data for the 1998-2003 monthly periods.