Connectedness Analysis of Volatility Transmission: Evidence from Turkey
Keywords:dynamic connectedness, currency crisis, volatility, debt stock
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.
Aharon, D. Y., Umar, Z., & Vo, X. V. (2021). Dynamic spillovers between the term structure of interest rates, bitcoin, and safe-haven currencies. Financial Innovation, 7(1), 1-25.
Antonakakis, N., Chatziantoniou, I., & Gabauer, D. (2020). Refined measures of dynamic connectedness based on TVP-VAR. Technical report.
Ahmed, H. T., & Mazlan, N. S. (2021). The Impact of Interest Rate on Exchange Rate Within ASEAN Countries: Evidence from Linear and Nonlinear ARDL Frameworks. Global Journal of Emerging Market Economies, 13(1), 7-34.
Balcilar, M., Gabauer, D., & Umar, Z. (2021). Crude Oil futures contracts and commodity markets: New evidence from a TVP-VAR extended joint connectedness approach. Resources Policy, 73, 102219.
BRSA, (2022). Monthly Banking Sector Data, May.
Capasso, S., Napolitano, O., & Jiménez, A. L. V. (2019). The long-run interrelationship between exchange rate and interest rate: The case of Mexico. Journal of Economic Studies, 46(7),1380-1397.
Chatziantoniou, I., Gabauer, D., & Stenfors, A. (2021). Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach. Economics Letters, 204, 109891.
Chatziantoniou, I., Gabauer, D. (20210. EMU risk-synchronisation and financial fragility through the prism of dynamic connectedness. Quarterly Review of Economic Finance. 79, 1–14.
Diebold, F. X., & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158-171.
Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57-66.
Diebold, F. X., & Yılmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), 119-134.
Dogan, I., Orun, E., Aydın, B., & Afsal, M. S. (2020). Non-parametric analysis of the relationship between inflation and interest rate in the context of Fisher effect for Turkish economy. International Review of Applied Economics, 34(6), 758-768.
Effiong, E. L., & Bassey, G. E. (2019). Stock prices and exchange rate dynamics in Nigeria: An asymmetric perspective. The Journal of International Trade & Economic Development, 28(3), 299-316.
Fazlollahi, N., & Ebrahimijam, S. (2022). The Relationship Between Interest Rates and Inflation: Time Series Evidence from Canada. In New Dynamics in Banking and Finance (pp. 191-205). Springer, Cham.
Fernández-Rodríguez, F., & Sosvilla-Rivero, S. (2020). Volatility transmission between stock and foreign exchange markets: a connectedness analysis. Applied Economics, 52(19), 2096-2108.
Eğilmez, M. (2022), Faiz, Kur ve Fiyat Dengesi, Kendime Yazılar, 5 May.
Gabauer, D., 2021. Dynamic measures of asymmetric & pairwise connectedness within an optimal currency area: Evidence from the ERM I system. Journal of Multinational Financial Management. 100680.
Karamelikli, H., & Karimi, M. S. (2022). Asymmetric relationship between interest rates and exchange rates: Evidence from Turkey. International Journal of Finance & Economics, 27(1), 1269-1279.
Kassouri, Y., & Altıntaş, H. (2020). Threshold cointegration, nonlinearity, and frequency domain causality relationship between stock price and Turkish Lira. Research in International Business and Finance, 52, 101097.
Khan, K., Su, C. W., & Koseoglu, S. D. (2022). Who are the influencers in the commodity markets during COVID-19?. Resources Policy, 78, 102854.
Koop, G., Pesaran, M.H., & Potter, S.M. (1996). Impulse response analysis in nonlinear multivariate models. Journal of econometrics. 74(1), 119-147.
Lastrapes, W. D., & Wiesen, T. F. (2021). The joint spillover index. Economic Modelling, 94, 681-691.
Mohammed, S., Mohammed, A., & Nketiah-Amponsah, E. (2021). Relationship between exchange rate volatility and interest rates evidence from Ghana. Cogent Economics & Finance, 9(1), 1893258.
Moussa, F., & Delhoumi, E. (2021). The asymmetric impact of interest and exchange rate on the stock market index: evidence from MENA region. International Journal of Emerging Markets.
Mouna, A., & Anis, J. (2017). Stock market, interest rate and exchange rate risk effects on non-financial stock returns during the financial crisis. Journal of the Knowledge Economy, 8(3), 898-915.
Nusair, S. A., & Al-Khasawneh, J. A. (2022). On the relationship between Asian exchange rates and stock prices: a nonlinear analysis. Economic Change and Restructuring, 55(1), 361-400.
Pesaran, H.H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economic Letters. 58 (1), 17–29.
Tiryaki, A., Ceylan, R., & Erdoğan, L. (2019). Asymmetric effects of industrial production, money supply and exchange rate changes on stock returns in Turkey. Applied Economics, 51(20), 2143-2154.
Wong, H. T. (2022). The impact of real exchange rates on real stock prices. Journal of Economics, Finance and Administrative Science https://doi.org/10.1108/JEFAS-03-2021-0011.
Yacouba, K., & Altintas, H. (2019). The asymmetric impact of macroeconomic shocks on stock returns in Turkey: a nonlinear ARDL approach. Journal for Economic Forecasting, 22, 98-116.
Zhao, Y., Umar, Z., & Vo, X. V. (2021). Return and volatility connectedness of Chinese onshore, offshore, and forward exchange rate. Journal of Futures Markets, 41(11), 1843-1860.