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The Role of Monetary Policy in Turkey During the Global Financial Crisis
Author: Mr. Selim A Elekdaghttps://orcid.org/0000-0002-1234-4463 and Mr. Harun Alp
Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 150
Language:
English
Publication Date:
01 Jun 2011
DOI:
https://doi.org/10.5089/9781455270484.001
ISBN:
9781455270484
ISSN:
1018-5941
Pages:
74
Keywords:
WP; monetary policy shock; monetary policy; demand shock; financial accelerator; Bayesian estimation; DSGE models; financial crises; sudden stops; Turkey; emerging economies; emerging markets; inflation targeting framework; interest rate rule; rule coefficient; open economy; rate of exchange rate depreciation; Exchange rate arrangements; Exchange rate flexibility; Global financial crisis of 2008-2009; Inflation targeting; Conventional peg; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund