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Turkey’ Trilemma Trade-offs: Is there a role for reserves?

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Author Info

  • Orcan ÇÖRTÜK

    (Merkez Bankası)

  • Nirvikar SINGH

    (University of California Santa Cruz)

Abstract

In this paper, we empirically investigate the Mundell-Fleming theoretical concept of an “impossible trinity” (trilemma) for Turkey, following the Aizenman, Chinn and Ito approach. However, we also introduce alternative empirical techniques in order to deal with possible misspecification problems that we detect in the mentioned approach. Accordingly, we show that financial integration and monetary independence have increased from late 1990s to 2010, with corresponding limitations on exchange rate stability. Our analysis continues by exploring the implications of changes in the trilemma indices for inflation in a regression in which we find that trilemma indices have certain impact on inflation. Finally by introducing international reserves (as a percentage of GDP) to the equation, we also attain role for international reserves on decreasing inflation conditional upon it is above a certain threshold.

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Bibliographic Info

Article provided by Bilgesel Yayincilik in its journal İktisat İşletme ve Finans.

Volume (Year): 28 (2013)
Issue (Month): 328 ()
Pages: 67-88

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Handle: RePEc:iif:iifjrn:v:28:y:2013:i:328:p:67-88

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Web page: http://iif.com.tr

Related research

Keywords: Trilemma; Impossible Trinity; International Reserves;

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References

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  1. Hafedh Bouakez & Nooman Rebei, 2003. "Why Does Private Consumption Rise After a Government Spending Shock?," Working Papers 03-43, Bank of Canada.
  2. Aizenman, Joshua & D. Chinn, Menzie & Ito, Hiro, 2009. "Surfing the Waves of Globalization: Asia and Financial Globalization in the Context of the Trilemma," ADB Economics Working Paper Series 180, Asian Development Bank.
  3. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2008. "Financial Stability, the Trilemma, and International Reserves," NBER Working Papers 14217, National Bureau of Economic Research, Inc.
  4. Hutchison, Michael & Sengupta, Rajeswari & Singh, Nirvikar, 2010. "India’s trilemma: financial liberalization, exchange rates and monetary policy," MPRA Paper 25327, University Library of Munich, Germany.
  5. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
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Cited by:
  1. Joshua Aizenman & Hiro Ito, 2012. "Trilemma Policy Convergence Patterns and Output Volatility," NBER Working Papers 17806, National Bureau of Economic Research, Inc.

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