Macroeconomic Dynamics Affecting the FX Position of Individuals and Non-Financial Firms in Turkiye

This paper examines the foreign exchange (FX) positions of households and non-financial firms in Turkiye, which have increased to record levels in 2021. We find that inflation, the exchange rate, and interest rate spread between domestic and foreign currency deposits - along with volatility in international financial markets - are decisive for households’ FX deposit holdings. Non-financial firms’ net open FX positions are negatively related to the dollar spot index, one-month implied volatility between the USD and Turkish lira, and costs of funding, while they are positively correlated with the real effective exchange rate, FX credits by the banking sector, and imports.