Fiscal Dominance and Inflation Targeting: Lessons from Turkey

Hasan Ersel and Fatih Ãzatay
Authors registered in the RePEc Author Service: Fatih Ozatay

Emerging Markets Finance and Trade, 2008, vol. 44, issue 6, 38-51

Abstract: In the aftermath of the 2000-2001 crisis in Turkey, the banking sector was in turbulence, requiring immediate action. The rescue operation significantly increased the public debt ratio with respect to gross domestic product. At the beginning of 2002, the central bank of Turkey announced that it was going to implement an implicit inflation-targeting regime. The fiscal dominance caused by the high debt ratio severely constrained the conduct of monetary policy. Other obstacles to the conduct of monetary policy included a high level of exchange rate pass-through, inflation inertia, and a weak banking sector. This paper offers an account of the monetary policy experience of Turkey in the postcrisis period and provides lessons for policymakers in other emerging markets.

Keywords: fiscal dominance; financial sector; exchange rate pass-through; inflation inertia; inflation targeting (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (22)

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