Macroprudential Policies as Buffer Against Volatile Cross-border Capital Flows

Ahmet Aysan, Salih Fendoglu () and Mustafa Kilinc

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

Abstract: This paper investigates the effectiveness of macroprudential policies introduced by Turkey in late 2010. The unprecedented quantitative easing policies of advanced countries after the global financial crisis have presented serious financial stability concerns for most emerging countries including Turkey. To cope with these challenges, Turkey has devised new policy tools such as asymmetric interest rate corridor and reserve option mechanism. From the perspective of capital flows, the interest rate corridor works mainly through stabilizing supply of foreign funds, and the reserve option mechanism through decreasing the sensitivity of equilibrium exchange rate to shifts in the demand for foreign funds. Using a large panel of 46 countries and employing Bruno and Shin (2013a,b)�s methodology, we investigate whether the new policy framework in Turkey has been successful in cushioning the economy from volatile cross-border capital flows from a comparative perspective. The results show that, after controlling for a set of domestic and external variables and relative to a group of advanced and emerging countries, cross-border capital flows to Turkey have been less sensitive to global factors after the implementation of macroprudential policies.

Keywords: Capital Flows; Macroprudential Policies (search for similar items in EconPapers)
JEL-codes: E58 F32 F34 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-ifn and nep-mac
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Citations: View citations in EconPapers (15)

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https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2014/14-04 (application/pdf)

Related works:
Journal Article: MACROPRUDENTIAL POLICIES AS BUFFER AGAINST VOLATILE CROSS-BORDER CAPITAL FLOWS (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1404

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