Research

Published Papers

Three Sisters: The Interlinkage between Sovereign Debt, Currency and Banking Crises, Journal of International Money and Finance, 131 (March 2023). (with Sylvester Eijffinger) Access to article

This study analyzes the interlinkage between sovereign debt, currency, and banking crises by applying panel data probit and multivariate probit models to a sample of 21 emerging economies observed monthly between 1985 and 2020. The results establish the simultaneity of the three crises in a given month, where banking, sovereign debt, and currency crises tend to occur jointly caused by common unobservable factors. The results also indicate that banking crises usually precede sovereign defaults, but not vice versa. Indirect effects suggest that short-term external indebtedness during banking crises, and misaligned exchange rates corrected by currency crises increase the future sovereign default likelihood.

Together or Apart? The Relationship between Currency and Banking Crises, Journal of Banking and Finance, 119 (October 2020). (with Sylvester Eijffinger) Access to article; Working Paper Version

The purpose of this study is to provide empirical evidence on the links between currency and banking crises. Panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having monthly observations between the years 1985 and 2010. The findings indicate that banking crises precede currency crises, and vice versa. Currency crises also indirectly influence future banking crises probability through external shocks, liberalized financial markets, or highly-leveraged banking sectors. The study also finds evidence of contemporaneous correlation between the two crises. The results not only confirm the theoretical links between banking and currency crises, but also underline the importance of higher frequency data in analyzing the relationship between various financial crises.

Currency Crises and Monetary Policy: A Study on Advanced and Emerging Economies, Journal of International Money and Finance, 31 (September 2012) 948-974. (with Sylvester Eijffinger) Access to article

The studies regarding the appropriate monetary policy response in defending the domestic currency following a currency crisis do not gather around a robust answer. This study tries to emphasize the notion that there is no single policy applicable for all currency crises happened and happening in the global world. The approach of the study is presenting empirical evidence by focusing separately on the advanced and emerging economies and proving that the monetary policy response for the emerging economies should be different from the advanced economies, depending mainly on the vulnerabilities of these economies preceding and during the crisis periods. The study includes twenty four economies, in which fifteen of them are emerging and nine of them are advanced, for the crisis periods between 1986 and 2009. The main finding of the study is that the tight monetary policy is effective in the advanced economies, and detrimental in the emerging economies faced financial turbulence. Advanced economies besides having more independent central banking, lower country riskiness and almost no default history; mainly have second generation model weaknesses which cause the increased interest rates to be successful in stabilizing the exchange rates. For the emerging economies the third generation model weaknesses play a major role together with the first generation model vulnerabilities. Thus policy makers should take into account the economic fragilities during the crisis in implementing the monetary policy.