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Turkey’s macroeconomic policy challenges in the aftermath of the 2018 crisis: A sectoral financial balances analysis

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  • Sashi SIVRAMKRISHNA

    (Kautilya Entrepreneurship & Management Institute & Foundation to Aid Industrial Recovery,Bengaluru, India)

  • Dhruva Teja NANDIPATI

    (Narsee Monjee Institute of Management Studies, Bengaluru, India)

Abstract

In August 2018, Turkey experienced a major economic crisis when its exchange rate depreciated by around 40 percent in the course of just a few days. This led to a credit bust that soon dragged Turkey into a recession. This paper analysis Turkey’s predicament using the stock-flow consistent sectoral financial balances (SFB) model to delineate and evaluate the policy options open to Turkey at a juncture where the private sector has commenced a process of deleveraging or in other words, reducing its net financial accumulation of liabilities. Since the crisis erupted, Turkey has tightened both monetary and fiscal policies to control accelerating inflation and the depreciating lira, which would then – it is hoped – revive investment and exports. However, prevailing uncertainties on account of deteriorating Turkish-US relations may prove a dampener on the success of these policies.

Suggested Citation

  • Sashi SIVRAMKRISHNA & Dhruva Teja NANDIPATI, 2019. "Turkey’s macroeconomic policy challenges in the aftermath of the 2018 crisis: A sectoral financial balances analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(621), W), pages 111-128, Winter.
    • Handle: RePEc:agr:journl:v:xxvi:y:2019:i:4(621):p:111-128
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    Cited by:

    1. Tetik Metin & Yıldırım Mustafa Ozan, 2021. "Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach," Economics and Business Review, Sciendo, vol. 7(3), pages 83-102, September.

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