The Role of Monetary Policy in Turkey During the Global Financial Crisis

June 1, 2011

Preview Citation

Format: Chicago

Selim A Elekdag, and Harun Alp. The Role of Monetary Policy in Turkey During the Global Financial Crisis, (USA: International Monetary Fund, 2011) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Turkey is an interesting case study because it was one of the hardest hit emerging economies by the global financial crisis, with a year-over-year contraction of 15 percent during the first quarter of 2009. At the same time, anticipating the fallout from the crisis, the Central Bank of the Republic of Turkey (CBRT) decreased policy rates by an astounding 1025 basis points over the November 2008 to November 2009 period. In this context, this paper addresses the following broad question: If an inflation targeting framework underpinned by a flexible exchange rate regime was not adopted, how much deeper would the recent recession have been? Counterfactual experiments based on an estimated structural model provide quantitative evidence which suggests that the recession would have been substantially more severe. In other words, the interest rate cuts implemented by the CBRT and exchange rate flexibility both helped substantially soften the impact of the global financial crisis.

Subject: Conventional peg, Exchange rate arrangements, Exchange rate flexibility, Financial crises, Foreign exchange, Global financial crisis of 2008-2009, Inflation targeting, Monetary policy

Keywords: Bayesian estimation, Conventional peg, Demand shock, DSGE models, Emerging economies, Emerging markets, Exchange rate arrangements, Exchange rate flexibility, Financial accelerator, Financial crises, Global, Global financial crisis of 2008-2009, Inflation targeting, Inflation targeting framework, Interest rate rule, Monetary policy, Monetary policy shock, Open economy, Rate of exchange rate depreciation, Rule coefficient, Sudden stops, Turkey, WP

Publication Details

Pages:

74
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/150
Stock No:

WPIEA2011150
ISBN:

9781455270484
ISSN:

1018-5941

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