Abstract
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 analysis 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 proved insufficient against the voluminous global flows.
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©2014 by De Gruyter
Articles in the same Issue
- Frontmatter
- Research Articles
- Economic Policies, Structural Change and the Roots of the “Arab Spring” in Egypt
- What to Smooth: Rate of Interest or the Foreign Exchange? Turkish Monetary Policy under Turbulent Times
- Income Elasticity and the Gender Gap: A Challenging MDG for the MENA Countries
- Financial Services and the GATS in the GCC: Problems and Prospects
- Book Review
- Alessandro Romagnoli and Luisa Mengoni: The Economic Development Process in the Middle East and North Africa
Articles in the same Issue
- Frontmatter
- Research Articles
- Economic Policies, Structural Change and the Roots of the “Arab Spring” in Egypt
- What to Smooth: Rate of Interest or the Foreign Exchange? Turkish Monetary Policy under Turbulent Times
- Income Elasticity and the Gender Gap: A Challenging MDG for the MENA Countries
- Financial Services and the GATS in the GCC: Problems and Prospects
- Book Review
- Alessandro Romagnoli and Luisa Mengoni: The Economic Development Process in the Middle East and North Africa