Connectedness Analysis of Volatility Transmission: Evidence from Turkey
Keywords:
dynamic connectedness, currency crisis, volatility, debt stockAbstract
The study is conducted to accomplish the objective of connectedness among Turkey's exchange rate, interest rate, inflation, and stock returns. The results explore the highest value of the Total Connectedness Index (TCI), which coincides with the currency crisis and with COVID-19. The results of the dynamic from the total directional connectedness reveal that TCI has greater connectedness with the interest rate and exchange rate. Similarly, the TCI has a strong connection with the stock market and inflation during 2021-2022. The results of the dynamic to TCI show that all the indicators have contributed to the TCI during the crisis. The dynamic net total directional connectedness results explore that the interest rate, exchange rate, inflation and stock returns have both transmitter and net receiver roles. The transmitting role of exchange rates to inflation confirms the high dependency on imported inputs reflected in inflation. The stability of prices and other variables appears to be determined by the appropriate interest rate policy and the stabilization of interest rates.
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