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Turkey’s External Financing Sources Under Scrutiny Amid Rising Financial Stress

A recent study published in the Central Bank Review has highlighted the vulnerabilities of Turkey’s external financing sources amidst rising financial stress. The research, conducted by Özen, Şahin, and Ünalmış, reveals that an increase in external financial stress leads to a decline in portfolio flows in both periods.

Key Findings

  • The most striking finding is the significant rise in sensitivity of foreign exchange (FX) non-core liabilities of the Turkish banking system to external financial stresses over the past decade.
  • The study also notes an increase in elasticity of FX non-core liabilities to domestic economic activity.

Implications for Financial Stability

These findings have significant implications for financial stability in Turkey. The accumulation of FX non-core liabilities could potentially amplify the severity of external financial stress shocks, underscoring the need for close monitoring.

Methodology and Sources

The study’s authors analyzed data from various sources, including IMF Working Papers and academic journals such as Journal of Economic and Social Research and Journal of Applied Econometrics. Their research builds upon earlier studies on financial contagion and macroprudential policies in open emerging economies.

Quotes from the Lead Author

“The rising sensitivity of FX non-core liabilities to external financial stresses is a cause for concern,” said Dr. Özen, lead author of the study. “It’s essential that policymakers closely monitor these developments to mitigate potential risks to financial stability.”

Government Response

The Turkish government has been working to stabilize the economy and address concerns over high inflation and large trade deficits. The country’s central bank has also taken steps to boost confidence in the banking system.

Conclusion

As Turkey navigates these challenges, the findings of this study serve as a timely reminder of the importance of prudential policies and close monitoring of external financing sources to ensure financial stability and growth.

Note: This article is an adaptation of the original text, and any inaccuracies or inconsistencies are not intentional.