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Mitigating Turkey’s Trilemma Tradeoffs

Author

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  • Yasin Akcelik
  • Orcan Cortuk
  • Ibrahim Turhan

Abstract

We study the trilemma configuration of the Turkish economy for the period 2002–11. This includes calculating the trilemma indices and regressing them on a constant following Aizenman et al. (2008). Yet we extend this approach by applying a Kalman filter to the classical linear regression to capture the time-varying importance of policy decisions. Next, we reveal the role of central bank foreign reserves and required reserves in mitigating trilemma tradeoffs through their relation with trilemma residuals in a vector autoregression (VAR) framework—we show that the foreign reserves to GDP ratio and the required reserve ratio have a positive significant impact on the residuals, thus making the policy tradeoffs smaller.

Suggested Citation

  • Yasin Akcelik & Orcan Cortuk & Ibrahim Turhan, 2014. "Mitigating Turkey’s Trilemma Tradeoffs," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(6), pages 102-118, November.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:6:p:102-118
    DOI: 10.1080/1540496X.2014.1013862
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    Cited by:

    1. MILEA, Camelia, 2016. "Exchange Rate Evolution In Romania - Effects On The Financial-Monetary Market," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(4), pages 17-36.
    2. Padhan, Hemachandra & Sahu, Santosh Kumar & Dash, Umakant, 2021. "Non-linear analysis of international reserve, trade and trilemma in India," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    3. Juan David Durán-Vanegas, 2019. "Making hard choices: trilemmas and dilemmas of macroeconomic policy in Latin America," Journal Econom a Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(2), pages 022-038, August.
    4. Chee-Hong Law & Chee-Lip Tee & Wei-Theng Lau, 2019. "The Impacts of Financial Integration on the Linkages Between Monetary Independence and Foreign Exchange Reserves," International Economic Journal, Taylor & Francis Journals, vol. 33(2), pages 212-235, April.
    5. Toraganlı, Nazlı & Yazgan, M. Ege, 2016. "Exchange rates and firm survival: An examination with Turkish firm-level data," Economic Systems, Elsevier, vol. 40(3), pages 433-443.
    6. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F39 - International Economics - - International Finance - - - Other
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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