Dynamics of international reserve accumulation in Turkish economy

Many of the emerging market economies embody macroeconomic and structural vulnerabilities due to large deficits, high inflation, slowing growth and heavy reliance on short-term capital inflows. Therefore, accumulation of international reserve holdings has been frequently used by authorities to serve as an insurance against the volatility of the capital flows and strengthen the fragile nature of these economies. Turkish economy, classified as one of the most fragile of the emerging economies, has been experiencing a similar process of international reserve accumulation. The chronically high current account deficit and low savings rate boost the importance of international reserves. Thus, the aim of this paper is to investigate the determinants of international reserves in Turkey. The dataset covers the 2000-2013 period. Consequently, we find that the international reserve accumulation is mainly explained by current account balance, per capita income and past crisis experience.