Abstract: Dollarization has grown dramatically in Turkey since Turkish banks were first allowed to offer foreign exchange deposit accounts to domestic citizens in 1984, and especially since the Turkish capital account was liberalized in 1989. This thesis attempts to measure the effects of dollarization on inflation, domestic production, and private investment in Turkey in the post-liberalization period. Using monthly data from 1987–2004 and an autoregressive distributed lags (ARDL) technique, we examine the short- and long-run relationships between these variables and their stability. Results indicate that dollarization had a strong impact on inflation, but only a short-run impact on domestic output, and no effect on private investment. Thus it appears that, in the presence of dollarization, expansionary fiscal policies that are accommodated by monetary policy can increase domestic production only in the short run, and only at the expense of prolonged inflation that may hamper growth in the long-run.