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Public Policy Analysis in Turkey

Past, Present and Future

Edited By Onur Kulaç, Elvettin Akman and Cenay Babaoğlu

This book presents a broad and comprehensive perspective on analysis of public policy in Turkey. Each of the twenty-six chapters presents historical development, legal background, actors, problems, and recommendations of different policies. The scope of this book is to fill the void in the literature with regards to the analyses of public policies in Turkey.

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18 The Relationship between Central Bank Independence, Financial Independence and Economic Growth in Turkey

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F. Özlem Alper and Ali Eren Alper

18   The Relationship between Central Bank Independence, Financial Independence and Economic Growth in Turkey

Introduction

For achieving economic objectives such as price stability, high level of employment, economic growth, and financial stability; a variety of economic policies are being implemented. Monetary and fiscal policies are among the most crucial policies that provide effectiveness in determining the direction and development of economic activities. Although the liberalization process in world financial markets, especially during the 1970s, attracted attention on monetary policies, there is a consensus on the necessity of coordinated performance of the monetary and fiscal policies for the sake of the ultimate success of the implemented economic policies.

Although the debate on the rules of monetary policies to be implemented dates way back in history, and the 1970s and 1980s became the turning points in the debate on this issue (McCallum, 1997: 18). The debates on monetary policy until then constituted the focal point of discussions among Keynesian, Monetarist and New Classical Economics. Following the Crisis of 1929; Keynes’ approach, bringing forth a framework for the recovery from the crisis, suggested that governments could overcome problems such as deflation and unemployment by demand-led voluntary policies, such as expenditures and taxation. This proposal, known as the activist policy proposal, was based on the original Phillips curve, which suggested a trade-off between unemployment and inflation (Woodford, 1999: 28). Nonetheless, in the industrialized countries during the 1970s, high inflation...

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