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Failure of an Exchange-Rate-Based Stabilization Plan in Turkey

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  • Giyas Gökkent
  • Carlos Moslares
  • Rafael Amiel-Saenz

Abstract

The Turkish exchange-rate-based stabilization plan adopted in 2000 has been a spectacular failure, lasting a mere fourteen months despite a relatively flexible peg regime and preannounced exit strategy. The final three months of the currency regime were marred by the eruption of a banking sector crisis that quickly developed into a currency crisis, quelled only by external loans and a blanket guarantee by the sovereign of all banking sector liabilities. This was ultimately to no avail as the lira was allowed to float following a full-fledged currency crisis in late February 2001. The usual indicators of crisis did not point to imminent turmoil in November 2000 despite widespread concern about eventual dire developments. To identify the source of the November crisis, one must weigh the factors that led economic agents, and banks in particular, to expect higher interest rates after the fall.

Suggested Citation

  • Giyas Gökkent & Carlos Moslares & Rafael Amiel-Saenz, 2003. "Failure of an Exchange-Rate-Based Stabilization Plan in Turkey," Eastern European Economics, Taylor & Francis Journals, vol. 41(1), pages 35-67, January.
  • Handle: RePEc:mes:eaeuec:v:41:y:2003:i:1:p:35-67
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    Cited by:

    1. Deniz Atasoy & Sweta C. Saxena, 2006. "Misaligned? Overvalued?. The Untold Story of the Turkish Lira," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 29-45, May.
    2. Ozlem Aytac, 2008. "A Model of Exchange-Rate-Based Stabilization for Turkey," Caepr Working Papers 2008-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

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