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Macroeconomics of twin-targeting in Turkey: analytics of a financial computable general equilibrium model


  • Cagatay Telli
  • Ebru Voyvoda
  • Erinc Yeldan


The paper provides an overview of the post-1998 Turkish economy and constructs a macroeconomic computable general equilibrium (CGE) model to illustrate the real and financial sectoral adjustments of the Turkish economy under the conditionalities of the 'twin targets': on primary surplus to gross national product (GNP) ratio and on the inflation rate. We further utilize the model to study three sets of issues: (i) the critical role of the expanded foreign capital inflows in resolving the macroeconomic impasse between the disinflation motives of the central bank and imperatives of debt sustainability and fiscal credibility of the ministry of finance; (ii) reduction of the central bank's interest rates, and (iii) a labor market reform of reducing payroll taxes. Our simulation results suggest that the current monetary strategy, which involves a heavy reliance on foreign capital inflows along with a relatively high real rate of interest, is effective in bringing inflation down; yet it suffers from increased cost of interest burden to the public sector, and strains fiscal credibility. In contrast, given the ex ante constraints of the domestic economy in the short run, an alternative heterodox policy of reduction of the central bank interest rate and lowering of the payroll tax burden in labor markets indicate strong employment and growth effects along with strengthened fiscal credibility.

Suggested Citation

  • Cagatay Telli & Ebru Voyvoda & Erinc Yeldan, 2008. "Macroeconomics of twin-targeting in Turkey: analytics of a financial computable general equilibrium model," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(2), pages 227-242.
  • Handle: RePEc:taf:irapec:v:22:y:2008:i:2:p:227-242
    DOI: 10.1080/02692170701880767

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    Cited by:

    1. Çiçek, Deniz & Elgin, Ceyhun, 2011. "Not-quite-great depressions of Turkey: A quantitative analysis of economic growth over 1968–2004," Economic Modelling, Elsevier, vol. 28(6), pages 2691-2700.
    2. Ulas Sener, 2016. "Die relative Autonomie der Zentralbank: Eine politökonomische Analyse der türkischen Geldpolitik nach 2001," Potsdam Economic Studies 05, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
    3. Ulas Sener, 2011. "Turkish Monetary Policy in a Post-Crises Era: A Further Case of ‘New Consensus’?," Chapters,in: Credit, Money and Macroeconomic Policy, chapter 14 Edward Elgar Publishing.

    More about this item


    twin-targeting; CGE; inflation; central banks;


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