Effectiveness of the reserve option mechanism as a macroeconomic prudential tool: evidence from Turkey
Date
2015
Authors
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Source Title
Applied Economics
Print ISSN
0003-6846
Electronic ISSN
1466-4283
Publisher
Routledge
Volume
47
Issue
56
Pages
6075 - 6087
Language
English
Type
Journal Title
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Abstract
This article assesses the effectiveness of a novel macroprudential tool – the reserve option mechanism (ROM) – which Turkey’s central bank developed during the post-2008 period and has employed to control the risk associated with excessive capital flows. We assess how capital flows have affected economic variable changes since the introduction and usage of the ROM. Empirical evidence gathered from Turkey suggests that the tool decreases the effect of capital flow on capital flow (positive shock to capital flow dies out faster or becomes less persistent) and diminishes the effects of capital flow shocks on exchange and interest rates. © 2015 Taylor & Francis.