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Financial Stability and Monetary Policy


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  • Erdem Basci
  • Hakan Kara


Rapid credit growth, short-term capital inflows, and associated macro-financial risks in the aftermath of the global crisis necessitated the use of alternative policy instruments in Turkey. Accordingly, the Central Bank of the Republic of Turkey (CBRT) has designed and adopted a new policy mix to incorporate financial stability into the inflation targeting framework by utilizing several complementary instruments. This study assesses the new policy strategy implemented by the CBRT. First we introduce the main structure of the new policy and explain how and for what purpose each instrument is used. We then elaborate on the communication strategy and assess the initial impact of the implementation. Although it is too early to draw firm conclusions, initial results so far suggest that a policy mix of lower policy rate, wider interest rate corridor, combined with higher reserve requirement ratios may serve as an appropriate strategy in dealing with short term capital inflows, especially in countries with current account deficits.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1108.

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Date of creation: 2011
Date of revision:
Handle: RePEc:tcb:wpaper:1108

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Keywords: Monetary policy; financial stability; macroprudential policies;

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Cited by:
  1. Yasin Akçelik & Ahmet Faruk Aysan & Arif Oduncu, 2013. "Central Banking in Making during the Post-Crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey," Journal of Central Banking Theory and Practice, Central bank of Montenegro, Central bank of Montenegro, vol. 2(2), pages 5-18.
  2. M. Utku Ozmen & Orhun Sevinc, 2012. "Mikro Verilerinden Yuksek Frekansli Fiyat Katiligi ve Enflasyon Egilimi Gostergeleri," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1217, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Bank for International Settlements, 2014. "The transmission of unconventional monetary policy to the emerging markets," BIS Papers, Bank for International Settlements, number 78.
  4. Ermişoğlu, Ergun & Akçelik, Yasin & Oduncu, Arif & Taşkın, Temel, 2013. "The Effects of Additional Monetary Tightening on Exchange Rates," MPRA Paper 46615, University Library of Munich, Germany.
  5. Salih Fendoglu & Mustafa Kilinc & Mehmet Yörükoglu, 2014. "Cross-border portfolio flows and the role of macroprudential policies: experiences from Turkey," BIS Papers chapters, in: Bank for International Settlements (ed.), The transmission of unconventional monetary policy to the emerging markets, volume 78, pages 347-359 Bank for International Settlements.
  6. Oduncu, Arif & Ermişoğlu, Ergun & Polat, Tandogan, 2013. "Credit Growth Volatility," MPRA Paper 49058, University Library of Munich, Germany.
  7. Mustafa Kilinç & Zübeyir Kilinç & M. Ibrahim Turhan, 2012. "Resilience of the Turkish Economy During the Global Financial Crisis of 2008," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 48(S5), pages 19-34, November.
  8. repec:cbk:journl:v:2:y:2013:i:1:p:5-18 is not listed on IDEAS


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