The policy challenge with floating exchange rates: Turkey's recent experience
Author(s)
Date
2005Source Title
Open Economies Review
Print ISSN
0923-7992
Electronic ISSN
1573-708X
Publisher
Springer New York LLC
Volume
16
Issue
3
Pages
295 - 312
Language
English
Type
ArticleItem Usage Stats
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Abstract
This paper evaluates the developments in the Turkish economy in light of the Central Bank of Turkey's (CBT) policies during a recent period of floating exchange rate system (March 2001-July 2003). It is found that the CBT was effective in containing volatility and reducing the average inflation rate while there was a strong recovery of output. However, there are accumulated risks in the economy. Particularly, the extreme appreciation of the Turkish lira during this period and the record level of real interest rates give the impression that the current state of the economy is fragile. Unless the government accelerates the structural reform process and pursues sound fiscal policies to reduce the public sector borrowing requirement and the debt ratio, an adverse shock to the system may trigger a reversal of fortune. © 2005 Springer Science + Business Media, Inc.
Keywords
Developing economiesExchange rate volatility
Float
Intervention
Central bank
Exchange rate
Inflation
Interest rate
Monetary policy
Eastern Hemisphere
Eurasia
Turkey
World