Optimum Currency Areas Theory: An Empirical Application to Turkey

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Ozer I., ÖZKAN İ., Aktan O. H.

SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS, vol.2, no.2, pp.75-88, 2007 (ESCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 2 Issue: 2
  • Publication Date: 2007
  • Doi Number: 10.2478/v10033-007-0008-y
  • Journal Name: SOUTH EAST EUROPEAN JOURNAL OF ECONOMICS AND BUSINESS
  • Journal Indexes: Emerging Sources Citation Index (ESCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, Central & Eastern European Academic Source (CEEAS), EconLit, Directory of Open Access Journals
  • Page Numbers: pp.75-88
  • Hacettepe University Affiliated: Yes

Abstract

This study aims to assess Turkey's position relative to European countries with respect to the optimum currency areas (OCA) criteria, taking Germany as the center country and employing Mahalanobis distance as a similarity measure. To this end, we followed a novel approach in the application of Hodrick-Prescott and Baxter-King filters to the industrial production series and the real interest rates under three cases. We then computed OCA similarity indices, calculated countries' similarities with respect to Germany and their nearest neighbors, and compared the results. Our results show that Turkey is the second furthest neighbor country to Germany after Croatia in the first two cases. However, Turkey is the third furthest country to Germany after Norway and Romania in the third case.