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

 
Author/Editor: Alp, Harun ; Elekdag, Selim
 
Publication Date: June 01, 2011
 
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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.
 
Series: Working Paper No. 11/150
Subject(s): Central bank policy | Economic indicators | Economic recession | Financial crisis | Flexible exchange rate policy | Global Financial Crisis 2008-2009 | Inflation targeting | Interest rate reductions | Monetary policy | Turkey

Author's Keyword(s): financial accelerator | Bayesian estimation | DSGE models | financial crises | sudden stops | monetary policy | Turkey | emerging economies | emerging markets
 
English
Publication Date: June 01, 2011
Format: Paper
Stock No: WPIEA2011150 Pages: 74
Price:
US$18.00 (Academic Rate:
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