Exchange rate crises in developing countries in recent years have led to an increase in dollarization processes. This emerging process can be divided into different types as a result of the diversity in the financial system. One of these is financial dollarization. There is broad consensus in the literature that financial dollarization can pose serious threats to macroeconomic and financial stability in the presence of large exchange rate fluctuations. In this context, the purpose of the study is to examine the interaction of financial dollarization with inflation and employment using monthly data for the period of December 2005 - November 2020 in Turkey. In the study, deposit dollarization and credit dollarization are used in the measurement of financial dollarization. The stationarities of the series were tested by ADF, PP and Lee-Strazicich unit root tests. The causality relationship between variables was tested by Toda-Yamamoto causality analysis. In addition, impulse response functions were also examined in order to measure the strength of the relationship between variables. According to the research findings, causality relationships were found from deposit dollarization to inflation and employment, from employment to credit dollarization and from credit dollarization to inflation.
