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Monetary Policy in Turkey After the Global Crisis

Author

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  • A. Hakan Kara
Abstract
Post-crisis spillovers and heightened capital flows have triggered a search for alternative monetary policy frameworks, especially for small open emerging economies. The Turkish experience since end-2010 sets out an interesting case in this respect. Faced with extreme volatility in cross-border capital flows, rapid credit growth and a sharp deterioration in the current account deficit, Central Bank of Turkey (CBT) has modified the conventional inflation targeting regime by adopting financial stability as a supplementary objective and enriching the set of policy instruments with a particular emphasis on credit and exchange rate channels. This study explains the underlying motivation why the CBT has adopted such a flexible policy, provides an overview of the new framework, and summarizes the initial results. The analysis conducted throughout the paper and the recent evidence suggests that the new policy framework has been quite effective in reducing the macro financial risks related to a sudden reversal of capital flows by engineering a �soft landing� of the Turkish economy. The policy has successfully shifted the composition of aggregate demand towards a more balanced growth path (rebalancing) without prejudice to the price stability objective.

Suggested Citation

  • A. Hakan Kara, 2012. "Monetary Policy in Turkey After the Global Crisis," Working Papers 1217, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1217
    as

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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2012/12-17
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    References listed on IDEAS

    as
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    Cited by:

    1. Mahmut Çelik & Ayla Oğuş Binatlı, 2022. "How Effective Are Macroprudential Policy Instruments? Evidence from Turkey," Economies, MDPI, vol. 10(4), pages 1-17, March.
    2. Cengiz Tunc, 2020. "The Effect of Credit Supply on House Prices: Evidence From Turkey," Housing Policy Debate, Taylor & Francis Journals, vol. 30(2), pages 228-242, March.
    3. Novák, Zsuzsanna, 2014. "Monetáris politika, infláció és gazdasági növekedés Kelet-Közép- és Délkelet-Európában [Monetary policy, inflation and economic growth in Central and South Eastern Europe]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 923-942.
    4. Değerli, Ahmet & Fendoğlu, Salih, 2015. "Reserve option mechanism as a stabilizing policy tool: Evidence from exchange rate expectations," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 166-179.
    5. Ranat Eskinat, 2014. "New Monetary Policy Approach in Turkey Against Financial Systemic Risk," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 12(2), pages 201-214.
    6. Murat Uysal, 2017. "Financial stability and macroprudential policy in Turkey," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 349-364, Bank for International Settlements.
    7. Hakan Kara & Hande Kucuk & Tolga Tiryaki & Canan Yuksel, 2014. "In Search of a Reasonable Credit Growth Rate for Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 14(1), pages 1-14.
    8. Bank for International Settlements, 2017. "Macroprudential frameworks, implementation and relationship with other policies," BIS Papers, Bank for International Settlements, number 94.
    9. Caner Bakir & Sinan Akgunay & Kerem Coban, 2021. "Why does the combination of policy entrepreneur and institutional entrepreneur roles matter for the institutionalization of policy ideas?," Policy Sciences, Springer;Society of Policy Sciences, vol. 54(2), pages 397-422, June.
    10. ?lyas ??klar & Burhan Do?an, 2015. "Monetary Condition Index with Time Varying Weights: An Application to Turkish Data," Business and Economic Research, Macrothink Institute, vol. 5(1), pages 117-132, June.
    11. Hasan Comert & Selman Colak, 2014. "The Impacts of the Global Crisis on the Turkish Economy and Policy Responses," ERC Working Papers 1417, ERC - Economic Research Center, Middle East Technical University, revised Dec 2014.
    12. Arhan S. Ertan & Gürbüz Kıran, 2021. "Global financial environment or monetary transmission mechanism? The (special) dynamics of Turkey's external deficit after 2002," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4054-4076, July.
    13. Akhand Akhtar Hossain, 2015. "Central Banking and Monetary Policy in Muslim-Majority Countries," Books, Edward Elgar Publishing, number 14612.
    14. Ch. Buelens, 2013. "Decoupled and resilient? The changing role of emerging market economies in an interconnected world," Economic Review, National Bank of Belgium, issue ii, pages 23-39, September.
    15. Bilge Bakin & Gozde Gurgun, 2014. "Portfolio Investments and Asset Prices Relationship in Turkey," Proceedings of International Academic Conferences 0201138, International Institute of Social and Economic Sciences.

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    More about this item

    Keywords

    Monetary policy; price stability; financial stability; capital flows; monetary transmission mechanism; macro-prudential policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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