Turkish Currency Crisis of 2000-1, Revisited
AbstractTurkey's exchange rate based stabilization program had collapsed within just eleven months of its implementation. Unsustainable public debt dynamics and fragility of the banking system have been the main reasons blamed for the demise of the program. However, the banking sector fragility became an issue only after the economy was hit buy a liquidity crunch in November 2000. Because the central bank functioned as a currency board, an abrupt reversal of the capital inflow was responsible for the liquidity crunch. The onset of the stabilization program brought down interest rates as expected and thus created ample opportunities for speculative investors to make safe one-sided bets. Thus, in our view the real cause of the capital reversal was profit taking on the part of foreign speculative investors holding government securities who conjectured that falling interest rates had reached their limit at the time.
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Bibliographic InfoPaper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2004_01.
Length: 20 pages
Date of creation: 2004
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