Interest Rate Smoothing and Macroeconomic Instability under Post-Capital Account Liberalization Turkey

This paper considers the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) in the post-financial liberalization and deregulation era. We find that (1) the Bank's interest rate smoothing tendency is the main determinant of its monetary policy in this period, (2) the CBRT...

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Bibliographic Details
Published in:Revue canadienne d'études du développement 2010-01, Vol.31 (3-4), p.459-482
Main Authors: Cömert, Hasan, Olçum, Gökçe Akın, Yeldan, A. Erinç
Format: Article
Language:English
Subjects:
Central bank of the Republic of Turkey
Central banks
Deregulation
Economic development
Foreign exchange rates
Inflation
Interest rates
Macroeconomics
Monetary policy
Sustainable development
Turkey
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Summary:This paper considers the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) in the post-financial liberalization and deregulation era. We find that (1) the Bank's interest rate smoothing tendency is the main determinant of its monetary policy in this period, (2) the CBRT does not seem to be responsive to the developments in real economy (output), and (3) although inflation targeting central banks are not supposed to pay attention to exchange rates, the CBRT appears to be slightly responsive to changes in real exchange rate. In answer to the question of whether there is a deeper underlying structural constraint binding the CBRT's "independence," it seems clear that the global financial system is restricting the ability of the central banks to pursue "independent" policy objectives.
ISSN:0225-5189
2158-9100
DOI:10.1080/02255189.2010.3673730