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The dynamics of a newly floating exchange rate: the Turkish case

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  • Oya Pınar Ardıc
  • Faruk Selcuk

Abstract

In recent years, many emerging market economies have switched or are in the process of switching to a floating exchange rate regime. Most of these economies have a history of high inflation and a high level of foreign currency denominated debt. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before. This paper analyses the dynamics of exchange rate in Turkey in the aftermath of recent float in February 2001. The Turkish experience is a particularly important one, and provides valuable lessons for other countries as the Central Bank is trying to simultaneously contain the volatility of exchange rate and pursue an implicit inflation targeting policy. The reported findings indicate that the Central Bank policies, accompanied with favourable external factors, were effective in taming the volatility of the exchange rate in a relatively short period of time. However, there is a significant real appreciation of the currency during the same period. Given the high level of public debt and real interest rates, the current state of the economy is very susceptible to any adverse shocks.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 8 ()
Pages: 931-941

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Handle: RePEc:taf:applec:v:38:y:2006:i:8:p:931-941

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References

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  1. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  2. Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
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  5. Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000. "Balance Sheets and Exchange Rate Policy," NBER Working Papers 7840, National Bureau of Economic Research, Inc.
  6. Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
  7. Reinhart, Carmen, 2000. "The mirage of floating exchange rates," MPRA Paper 13736, University Library of Munich, Germany.
  8. Gaston Gelos & Alessandro Prati & Oya Celasun, 2003. "Would "Cold Turkey" Work in Turkey?," IMF Working Papers 03/49, International Monetary Fund.
  9. Fabrizio Perri & Michele Cavallo & Kate Kisselev & Nouriel Roubini, 2004. "Exchange rate overshooting and the costs of floating," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  10. Rudi Dornbusch, 2001. "A Primer on Emerging Market Crises," NBER Working Papers 8326, National Bureau of Economic Research, Inc.
  11. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, vol. 90(2), pages 65-70, May.
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  13. Mohsen Bahmani-Oskooee & Ilker Doma�, 2003. "On the Link between Dollarisation and Inflation: Evidence from Turkey1," Comparative Economic Studies, Palgrave Macmillan, vol. 45(3), pages 306-328, September.
  14. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," IDB Publications 6821, Inter-American Development Bank.
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Cited by:
  1. Nedeljković, Milan & Urošević, Branko, 2012. "Determinants of the Dinar-Euro Nominal Exchange Rate," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 121-141, September.
  2. Ardic Oya Pinar & Yuzereroglu Uygar, 2009. "How Do Individuals Choose Banks? An Application to Household Level Data from Turkey," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-26, June.
  3. Levent, Korap, 2008. "Asymmetric information content of the YTL/US$ exchange rate return: new evidence from the post-crisis data using arma-egarch-m modeling," MPRA Paper 19631, University Library of Munich, Germany.
  4. Levent, Korap, 2007. "Analyzing CBRT's FOREX interventions using EGARCH (2001-2006)," MPRA Paper 20634, University Library of Munich, Germany.
  5. Alper, Emre & Hatipoglu, Ozan, 2009. "The Conduct of Monetary Policy in Turkey in the Pre- and Post-crisis Period of 2001 in Comparative Perspective: a Case for Central Bank Independence," MPRA Paper 18426, University Library of Munich, Germany.
  6. Levent, Korap, 2007. "Information content of exchange rate volatility: Turkish experience," MPRA Paper 19598, University Library of Munich, Germany.

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