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The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis

  • Ozge Akinci
  • Olcay Yucel Culha
  • Umit Ozlale
  • Gulbin Sahinbeyoglu

This study has two purposes. First, it attempts to improve the literature on foreign exchange interventions of the central banks for the emerging market economies, which have not been studied in details. The Turkish economy in the post-crisis period constitutes a good example in this context. Second, it proposes a new methodology, a time-varying parameter model, to analyze the effectiveness of the foreign exchange interventions. When the results from such an exercise are compared with the ones obtained from an event-study analysis, we find that the purchase-based interventions seem to be successful especially after the financial markets were stabilized. In that sense, we detect an asymmetry regarding the effectiveness of interventions. About the relationship between the interest rates and the exchange rates, we find that the uncovered interest rate parity condition operates in an unconventional way supporting the views put forth by the new emerging markets literature.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/274e864f-c75b-4301-b7f2-afc1a1834277/WP0506ENG.pdf?MOD=AJPERES&CACHEID=274e864f-c75b-4301-b7f2-afc1a1834277
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0506.

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Date of creation: 2005
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Handle: RePEc:tcb:wpaper:0506
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  1. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
  2. Kaminsky, Graciela L. & Lewis, Karen K., 1996. "Does foreign exchange intervention signal future monetary policy?," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 285-312, April.
  3. Bonser-Neal, Catherine & Roley, V Vance & Sellon, Gordon H, Jr, 1998. "Monetary Policy Actions, Intervention, and Exchange Rates: A Reexamination of the Empirical Relationships Using Federal Funds Rate Target Data," The Journal of Business, University of Chicago Press, vol. 71(2), pages 147-77, April.
  4. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoğlu, 2006. "The effectiveness of foreign exchange interventions under a floating exchange rate regime for the Turkish economy: a post-crisis period analysis," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1371-1388.
  5. Ilker Domac & Alfonso Mendoza, 2002. "Is there Room for Forex Interventions under Inflation Targeting Framework? Evidence from Mexico and Turkey," Discussion Papers 0206, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc.
  7. Zoe McLaren, 2002. "The Effectiveness Of Reserve Bank Of Australia Foreign Exchange Intervention," Department of Economics - Working Papers Series 849, The University of Melbourne.
  8. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
  9. Juann H. Hung, 1991. "Noise trading and the effectiveness of sterilized foreign exchange intervention," Research Paper 9111, Federal Reserve Bank of New York.
  10. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 779-793, September.
  11. Carlo A. Favero & Francesco Giavazzi, 2004. "Inflation Targeting and Debt: Lessons from Brazil," NBER Working Papers 10390, National Bureau of Economic Research, Inc.
  12. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  13. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
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