Turkey’s experience with the global crisis: restructuring policies within a financial stability framework

Abstract

The challenges threatening financial stability have grown owing to the increasing uncertainties in the global markets since the financial crisis. This has led policymakers to grant a larger role to financial stability in their implementations. Accordingly, the Turkish Central Bank modified its existing inflation targeting framework by explicitly highlighting the role of financial stability rather than imposing capital controls solely. Required reserves, interest rate corridor and liquidity management policies are utilized in addition to the one-week repo rate. We conclude that Turkey’s new policy mix has so far been effective at discouraging capital short-term inflows, representing an alternative approach to capital controls.

Keywords:

• inflation targeting
• interest rate corridor
• macroprudential tools
• financial stability

JEL Classifications:

• E4
• E5
• G1