Prague Economic Papers 2026, 35(3):416-445 | DOI: 10.18267/j.pep.915

Does Consumer Confidence Matter? Reconsidering the Relationship between Interest Rates and Dollarization in Turkey

Banu Demirhan ORCID...
Afyon Kocatepe University, Afyon, Turkey

This study examines deposit and credit dollarization in Turkey, with a particular focus on whether consumer confidence moderates the relationship between interest rates and dollarization. Using monthly data from January 2012 to May 2025, we estimate an autoregressive distributed lag model as the main empirical framework and assess robustness using fully modified ordinary least squares, dynamic ordinary least squares, and canonical cointegration regression. The empirical findings indicate a conditional association between interest rates and dollarization, which should be interpreted cautiously, given potential simultaneity and endogeneity concerns. This relationship is conditional on consumer confidence: as confidence rises, the marginal (de-dollarizing) association between interest rates and dollarization weakens, whereas it strengthens when confidence is low. Additionally, exchange rate depreciation appears to amplify dollarization pressures. By contrast, the post-2022 policy-regime period (captured by the dummy variable) is negatively associated with both deposit and credit dollarization. This outcome likely reflects several simultaneous developments rather than a single, isolated policy effect. Overall, the findings suggest that in emerging economies such as Turkey, interest-rate strategies for de-dollarization are most potent during periods of low consumer confidence, as the marginal effectiveness of rate hikes diminishes as sentiment improves. Our findings suggest that in emerging economies such as Turkey, interest-rate strategies for de-dollarization are most potent during periods of low consumer confidence, as the marginal effectiveness of rate hikes diminishes as sentiment improves. This highlights the importance of decisive monetary policy in fragile confidence environments, complemented by long-term measures that reinforce macroeconomic stability and institutional credibility.

Klíčová slova: Dollarization, Interest Rate, Consumer Confidence, Monetary Policy, ARDL Approach
Klasifikace JEL: E44, E52, E71, G21

Vloženo: 5. srpen 2025; Revidováno: 25. březen 2026; Přijato: 10. duben 2026; Zveřejněno online: 8. září 2026; Zveřejněno: 10. září 2026  Zobrazit citaci

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Demirhan, B. (2026). Does Consumer Confidence Matter? Reconsidering the Relationship between Interest Rates and Dollarization in Turkey. Prague Economic Papers, 35(3), 416-445. doi: 10.18267/j.pep.915
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