THE IMPACT OF PUBLIC BORROWING ON MARKET RISK PERCEPTION: DYNAMICS OF FISCAL DOMINANCE IN TURKEY

In the Turkish economy, fiscal dominance has a significant impact on economic indicators such as the sustainability of public debt stock, CDS spreads, and nominal exchange rates. The main problem of this study is to understand the interaction between fiscal dominance and financial markets. The research aims to analyze the relationship between financial dominance and CDS premiums and nominal exchange rates using quarterly data from the period 2009:Q1–2024:Q3. The stationarity of the series was evaluated using DF-GLS and Phillips-Perron unit root tests, and long-term relationships were identified using the Fourier-Shin cointegration test. Coefficient estimates were made using the Dynamic Ordinary Least Squares (DOLS) method, and short- and long-term causalities were examined using the Breitung and Candelon frequency domain causality test. The results indicate that CDS spreads and the nominal exchange rate have limited effects on financial dominance and that financial dominance is more shaped by internal dynamics. The study emphasizes the importance of using broader indicators in the analysis of financial dominance.