Time Series Analysis of Dollarization: Impact on Public Sector Debt Instruments

In developing countries, the corporate sector and basic sector firms generally prefer foreign currencies in their borrowings in accordance with international economic agreements and contractual covenants. Borrowing by the corporate sectors through dollarisation is considered to be one of the triggers of high levels of real exchange rate increases. This is due to the negative aspects of the financial effects of borrowing in foreign currency by companies in developing countries, such as global financial shocks, sudden stops and outflows of capital flows. This situation leads to rapid depreciation of the local currency and therefore increases the risk ratios of borrowing costs and the financial effects that companies may face due to these costs. In this context, it decreases the net value of companies' balance sheets, which negatively affects the investment decisions of companies. Moreover, this situation also constitutes a risk factor for the banking sector. As a result, this risk factor, which causes negative effects for companies, has the potential to affect the national economy, which may force Central Banks to review the fixed exchange rate policy. Debt dollarisation of real sector firms in Turkey and the impact of real exchange rate changes on investments are examined using the Central Bank of the Republic of Turkey's Sector Balance Sheets inputs for firms and the Central Bank of the Republic of Turkey's Risk Center risk inputs. The determinants of firm-level debt dollarisation in Turkey and its effects on investments are investigated using twenty-five years of firm-level data from 1990-2015. Keywords: Dollarisation Recession, Corporate Borrowing Rates, Private Sector