The dynamics of a newly floating exchange rate: the Turkish case

Date
2006
Authors
Ardıç, O. P.
Selçuk, F.
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Source Title
Applied Economics
Print ISSN
0003-6846
Electronic ISSN
1466-4283
Publisher
Routledge
Volume
38
Issue
8
Pages
931 - 941
Language
English
Type
Article
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Abstract

In recent years, many emerging market economies have switched or are in the process of switching to a floating exchange rate regime. Most of these economies have a history of high inflation and a high level of foreign currency denominated debt. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before. This paper analyses the dynamics of exchange rate in Turkey in the aftermath of recent float in February 2001. The Turkish experience is a particularly important one, and provides valuable lessons for other countries as the Central Bank is trying to simultaneously contain the volatility of exchange rate and pursue an implicit inflation targeting policy. The reported findings indicate that the Central Bank policies, accompanied with favourable external factors, were effective in taming the volatility of the exchange rate in a relatively short period of time. However, there is a significant real appreciation of the currency during the same period. Given the high level of public debt and real interest rates, the current state of the economy is very susceptible to any adverse shocks. © 2006 Taylor & Francis.

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Keywords
Central bank, Currency market, Exchange rate, Financial policy, Inflation, Eurasia, Turkey
Citation
Published Version (Please cite this version)