Monetary Policy in Turkey After the Global Crisis

Hakan Kara

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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.

Keywords: Monetary policy; price stability; financial stability; capital flows; monetary transmission mechanism; macro-prudential policy (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ara
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1217

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