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Current Issues in Turkish Economics

Problems and Policy Suggestions

Edited By Çağlar Yurtseven and Mahmut Tekce

The book covers a wide range of issues in Turkish economy and aims to discuss the problems, challenges and potential of Turkey in various sectors. The topics covered in the book include areas related to macroeconomics and monetary economics (inflation expectations, determinants and conduct of monetary policy), labor economics (earning differences, overeducation in labor markets), health economics (adult obesity), tourism economics (tourism response to disruptive events) and energy economics (solar energy systems). The book is written in a format so that general readers who are interested in the Turkish economy can easily read and have a deep understanding of the current economic issues in Turkey. In addition, the book is suitable for usage in the related courses as a textbook at the undergrauate and masters level in the fields of economics and business.

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Monetary Policy in Turkey

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The Monetary Policy in Turkey after 2008: The Case of a Small Open Economy

Abstract: This chapter examines the monetary policy in Turkey since the 2008 global financial crisis. The impact of quantitative easing (QE) and tapering policies on monetary policy designation is considered. In the post-2008 period, the Central Bank of the Republic of Turkey (CBRT) tried to control capital inflows using innovative tools in QE episodes. However, during the subsequent 2013–2018 sub-period, in which Turkish Lira depreciated owing to capital outflows, CBRT followed a relatively simpler and more orthodox monetary policy.

Keywords: monetary policy, quantitative easing, Central Bank of Turkey

JEL: E44, E52, E58, F32, F41

1 Introduction

The history of the Turkish economy over the last four decades is replete with many examples of concepts taught in macroeconomics courses, such as debt monetization, the crowding-out effect, the impossible trinity, and exchange rate pass-through. Although this study mainly analyzes monetary policy in Turkey following the 2008 global financial crisis, as well as the developments in the money market, it also summarizes the fundamental structural characteristics of the pre-2008 period. The post-2008 period, which is the subject of the current analysis, is divided into 2008–2013 and 2013–2018sub-sections, to show how and in which direction the global financial conditions affected the monetary policy of a small open economy such as Turkey’s. In the 2008–2013 sub-periods, the central banks of developed countries, in particular, the...

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