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Financial Stability and Monetary Policy

Author

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  • Erdem Basci
  • Hakan Kara

Abstract

Rapid credit growth, short-term capital inflows, and associated macro-financial risks in the aftermath of the global crisis necessitated the use of alternative policy instruments in Turkey. Accordingly, the Central Bank of the Republic of Turkey (CBRT) has designed and adopted a new policy mix to incorporate financial stability into the inflation targeting framework by utilizing several complementary instruments. This study assesses the new policy strategy implemented by the CBRT. First we introduce the main structure of the new policy and explain how and for what purpose each instrument is used. We then elaborate on the communication strategy and assess the initial impact of the implementation. Although it is too early to draw firm conclusions, initial results so far suggest that a policy mix of lower policy rate, wider interest rate corridor, combined with higher reserve requirement ratios may serve as an appropriate strategy in dealing with short term capital inflows, especially in countries with current account deficits.

Suggested Citation

  • Erdem Basci & Hakan Kara, 2011. "Financial Stability and Monetary Policy," Working Papers 1108, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1108
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2011/11-08
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    Cited by:

    1. Koray Alper & Mustafa Kilinç & Mehmet Yörükoglu, 2015. "Monetary policy transmission and shifts in financial intermediation," BIS Papers chapters,in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 395-408 Bank for International Settlements.
    2. Ermişoğlu, Ergun & Akçelik, Yasin & Oduncu, Arif & Taşkın, Temel, 2013. "The Effects of Additional Monetary Tightening on Exchange Rates," MPRA Paper 46615, University Library of Munich, Germany.
    3. Değerli, Ahmet & Fendoğlu, Salih, 2015. "Reserve option mechanism as a stabilizing policy tool: Evidence from exchange rate expectations," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 166-179.
    4. Yusuf Soner Baskaya & Mahir Binici & Turalay Kenç, 2017. "International Banking and Cross-Border Effects of Regulation: Lessons from Turkey," International Journal of Central Banking, International Journal of Central Banking, vol. 13(2), pages 379-403, March.
    5. Varlik Serdar & Berument M. Hakan, 2016. "Credit channel and capital flows: a macroprudential policy tool? Evidence from Turkey," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 145-170, January.
    6. Mustafa Kilinç & Zübeyir Kilinç & M. Ibrahim Turhan, 2012. "Resilience of the Turkish Economy During the Global Financial Crisis of 2008," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(S5), pages 19-34, November.
    7. Ahmet Aysan & Salih Fendoglu & Mustafa Kilinc, 2014. "Managing short-term capital flows in new central banking: unconventional monetary policy framework in Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 45-69, June.
    8. Ahmet Benlialper & Hasan Comert, 2015. "Global Constraints on Central Banking:The case of Turkey," Working papers wpaper111, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    9. M. Utku Ozmen & Orhun Sevinc, 2012. "Mikro Verilerinden Yuksek Frekansli Fiyat Katiligi ve Enflasyon Egilimi Gostergeleri," CBT Research Notes in Economics 1217, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. repec:spr:pharme:v:4:y:2014:i:1:p:45-69 is not listed on IDEAS
    11. Adigozalov, Shaig & Huseynov, Salman, 2015. "İnflyasiya hədəflənməsinin əməliyyat çərçivəsi: ölkə təcrübələri AMB üçün nə vəd edir?
      [Operational framework of Inflation Targeting: what promises do country experiences make to the CBAR?]
      ," MPRA Paper 76349, University Library of Munich, Germany.
    12. repec:cbk:journl:v:2:y:2013:i:1:p:5-18 is not listed on IDEAS
    13. repec:spr:pharme:v:4:y:2014:i:1:p:71-79 is not listed on IDEAS
    14. Yasin Akçelik & Ahmet Faruk Aysan & Arif Oduncu, 2013. "Central Banking in Making during the Post-Crisis World and the Policy-Mix of the Central Bank of the Republic of Turkey," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(2), pages 5-18.
    15. Bank for International Settlements, 2015. "What do new forms of finance mean for EM central banks?," BIS Papers, Bank for International Settlements, number 83, November.
    16. Ergun Ermisoglu & Yasin Akcelik & Arif Oduncu & Temel Taskin, 2014. "Effects of additional monetary tightening on exchange rates," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 71-79, June.
    17. Salih Fendoglu & Mustafa Kilinc & Mehmet Yörükoglu, 2014. "Cross-border portfolio flows and the role of macroprudential policies: experiences from Turkey," BIS Papers chapters,in: Bank for International Settlements (ed.), The transmission of unconventional monetary policy to the emerging markets, volume 78, pages 347-359 Bank for International Settlements.
    18. Bank for International Settlements, 2014. "The transmission of unconventional monetary policy to the emerging markets," BIS Papers, Bank for International Settlements, number 78, November.
    19. Oduncu, Arif & Ermişoğlu, Ergun & Polat, Tandogan, 2013. "Credit Growth Volatility," MPRA Paper 49058, University Library of Munich, Germany.

    More about this item

    Keywords

    Monetary policy; financial stability; macroprudential policies;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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