What to smooth: Rate of interest or the foreign exchange? Turkish monetary policy under turbulent times
Yeldan, A. E.
Please cite this item using this persistent URLhttp://hdl.handle.net/11693/12418
Review of Middle East Economics and Finance
- Department of Economics 
This paper studies the new monetary stance of the Central Bank of Republic of Turkey (CBRT) during the Great Recession. We note that characteristics of the post-1997 “great moderation” revealed interest rate smoothing as a valid policy option for the inflation targeting central banks. Utilizing econometric analyses on a general form of a Taylor Rule, we search for the relative weights of the objective function of the CBRT over Jan 2010 – Dec 2013. We find that over the great recession, the CBRT’s focus on “interest smoothing” had been maintained; and yet the burden of adjustment fell disproportionately on the foreign exchange markets. Furthermore, weak credibility of the CBRT, lack of a simple policy rule, and noisy policy communications evidence that pre-requisites of the interest rate smoothing are not being fulfilled. Inevitable sharp policy corrections that follow smoothing periods prove insufficient against the voluminous global flows.
Yeldan, A. E., Kolsuz, G., & Unuvar, B. (2014). What to Smooth: Rate of Interest or the Foreign Exchange? Turkish Monetary Policy under Turbulent Times. Review of Middle East Economics and Finance, 10(3), 247-261.