Assessing domestic debt sustainability of Turkey with a risk management approach

Tiftik, Mehmet Emre
This thesis analyzes the debt dynamics of Turkey and assesses the sustainability of fisscal policy. The assessment of fiscal policy follows the methodology of Garcia and Rigobon (2004). This approach focuses on the concept of debt sustainability from a risk management perspective and incorporates the effects of stochastic shocks to the economy in its assessment. The results suggest that a continuation of the present fiscal stances will lead to a fiscal unsustainability in Turkey. Furthermore, the results indicate that the properties of the debt dynamics are closely related to the spreads on both dollar denominated debt and YTL denominated debt. This thesis also provides an application of two traditional methodologies, such as Wilcox's (1989) methodology and Uctum and Wicken's (2000) methodology in order to assess the fiscal sustainability of Turkey.


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In this study, stochastic simulation based risk analysis is applied to the government domestic debt stock in Turkey with the motivation to identify the cost and risk characteristics of alternative debt financing strategies. Future path of interest rates is simulated by using the yield curve forecasting framework in Diebold and Li (2002), which is founded on the Nelson-Siegel yield curve model. Yield curve simulation is based on the estimated term structure of interest rates for the period June 2001-July 200...
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The globalization leads to integration of the economies worldwide. As the firms' businesses also get integrated with each other, the financing choices of the firms diversify. Among these choices, the popularity and the share of foreign currency borrowing in total borrowing by non-financial firms increase in Turkey similar to the global developments. The main purpose of this thesis is to price the risks of default and financial distress due to foreign currency denominated loans of non-financial firms in Turk...
Citation Formats
M. E. Tiftik, “Assessing domestic debt sustainability of Turkey with a risk management approach,” M.S. - Master of Science, Middle East Technical University, 2006.