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Reserve Options Mechanism and FX Volatility

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Author Info

  • Arif Oduncu
  • Yasin Akcelik
  • Ergun Ermisoglu

Abstract

Reserve Options Mechanism (ROM), which is the option to hold FX or gold reserves in increasing tranches in place of Turkish Lira reserve requirements of Turkish banks, was designed and launched by the Central Bank of the Republic of Turkey (CBRT). ROM is a tool unique to the CBRT and it is aimed to support the FX reserve management of the banking system and to limit the adverse effects of excess capital flow volatility on the macroeconomic and financial stability of Turkey. In this paper, we study the effectiveness of ROM on the volatility of Turkish Lira, and to the best of our knowledge, it is the first analytical paper on investigating the effects of the ROM. The results suggest that ROM is an effective policy tool in decreasing the volatility of Turkish lira in the sample period.

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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 1303.

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Date of creation: 2013
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Handle: RePEc:tcb:wpaper:1303

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Related research

Keywords: Reserve Options Mechanism; Volatility of Turkish Lira; Central Bank of the Republic of Turkey’s Policy Mix; GARCH;

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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, vol. 2(2), pages 5-18.
  2. Oduncu, Arif & Ermişoğlu, Ergun & Polat, Tandogan, 2013. "Credit Growth Volatility," MPRA Paper 49058, University Library of Munich, Germany.

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