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      Optimal versus adequate level of international reserves: evidence for Turkey

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      Author(s)
      Ozyildirim, S.
      Yaman, B.
      Date
      2005
      Source Title
      Applied Economics
      Print ISSN
      0003-6846
      Electronic ISSN
      1466-4283
      Publisher
      Routledge
      Volume
      37
      Issue
      13
      Pages
      1557 - 1569
      Language
      English
      Type
      Article
      Item Usage Stats
      212
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      292
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      Abstract
      The determination of international reserve balance for emerging economies is part of the efforts to strengthen the immunity of these economies to crises. However, there is still evidence on crises even for the countries with large foreign reserves. It has usually been experienced that the countries with greatest need for reserves economize more than others on their holdings since they might underestimate the cost of crisis. In this study, the official international reserves of Turkey are tested against optimality and adequacy. During 1988-2002, the actual reserves fell short of both the optimal and the adequate levels. They are only optimal when the expected cumulative contraction is about 5.2% of real GDP under crisis. However, early evidence from emerging economies and Turkey show that crises hit more heavily. Hence, it is found that the current financial structure in Turkey such as the absence of capital controls and a highly dollarized banking system necessitates more foreign reserves for preventing any future economic and/or financial shocks.
      Keywords
      Financial crisis
      Financial market
      National economy
      Turkey
      World
      Permalink
      http://hdl.handle.net/11693/24018
      Published Version (Please cite this version)
      http://dx.doi.org/10.1080/00036840500166373
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      • Department of Management 639
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