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

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

Author's Keyword(s): financial accelerator | Bayesian estimation | DSGE models | financial crises | sudden stops | monetary policy | Turkey | emerging economies | emerging markets
Publication Date: June 01, 2011
ISBN/ISSN: 9781455270484/1018-5941 Format: Paper
Stock No: WPIEA2011150 Pages: 74
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