The Political Economy of Central Banking in Turkey: The Macroprudential Policy Regime and Self-Undermining Feedback

Abstract

This article examines the political economy of central banking in Turkey in the aftermath of the global financial crisis. The macroprudential turn led by the Turkish central bank not only created a political backlash from within the AKP government but also revealed the divergent preferences of real and financial sector actors in the Turkish economy. Using the policy regimes and policy feedback framework with a qualitative data analysis methodology, this article argues that the interplay between the contextualised material, ideational, structural and institutional forces, the strategies of leading politicians and how the stakeholders perceived and evaluated the new policy framework had a critical role in shaping the legitimacy, coherence and durability of the macroprudential policy regime in Turkey.

Keywords:

• Policy regime
• policy feedback
• political backlash
• central bank
• global financial crisis
• macroprudential policy
• Turkey
• AKP

Acknowledgements

The author thanks the Editors of South European Society and Politics and the anonymous referees for their helpful comments and suggestions. An earlier version of this paper was presented at the International Conference on Public Policy (ICPP) in Singapore in 2017. The author thanks Mehmet Kerem Çoban and other panellists for their insightful comments and recommendations during the ICPP panel.

Notes

1. See Borio & Disyatat 2010; Borio 2011; Braun 2015; Goodhart et al. 2014; Han 2015; Lombardi & Moschella 2017; Ronkainen & Sorsa 2017.

2. In central banking jargon, these measures are termed ‘quantitative easing’ policies. For more on quantitative easing, see Fawley and Neely (2013).

3. See Bhattarai & Neely 2016; Borio & Zabai 2016; Galati & Moessner 2017; Gambacorta, Hofmann & Peersman 2014; Pattipeilohy et al. 2013; Pereira 2016; Wang 2016.

4. TCMB’s top management changed during the second quarter of 2016. Accordingly, the ‘current’ TCMB officials identified in the interviews reflect the TCMB management before this change. The ‘former’ TCMB officials in this study worked at TCMB before 2015.

5. FİK was established by the Turkish Treasury in 2011 to coordinate financial stability related activities implemented by TCMB and regulatory agencies.

6. This research makes use of NVivo 11 software for managing, querying, visualising and reporting qualitative data systematically and rigorously (Bazeley & Jackson 2013).

7. As a conventional monetary policy tool, central banks adopt a symmetric interest rate corridor. With the macroprudential turn, TCMB started to utilise an asymmetric interest rate corridor so that the upper and lower bounds of the corridor could be widened or reduced with changing levels of capital flows. The ROM allows Turkish banks to deposit foreign currency or gold for their Turkish lira reserve requirement. For more on these unconventional monetary policy measures, see Yağcı (2017).

8. Yağcı (2017) identifies the proactive involvement of TCMB in the introduction of macroprudential measures as institutional entrepreneurship in the Turkish context and argues that the agenda of FİK was largely determined by TCMB with the political support of Deputy Prime Minister Ali Babacan who headed FİK meetings between 2011 and 2015.

9. The full list of interviewees is given in the appendix at the end of the article.

10. For recent applications of QDA in political research, see Borras and Hojlund (2015) and Bakır (2017).

11. TCMB started to implement a new real sector communication strategy titled ‘RESIM’ in Turkish, meaning ‘picture’, referring to ‘Economic Lens to the Real Sector’. Since the outcomes of this new strategy are not publicly available yet, this paper does not elaborate more on this issue.

12. The issue of central bank independence has international relevance especially after the global financial crisis because the central banks have significantly expanded their mandates and tools. This has contributed to their increasing domination in economic policy and further politicisation of their activities. For more on the debates surrounding central bank independence following the global financial crisis, see Fernández-Albertos (2015).