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Turkish Currency Crisis of 2000-1, Revisited

  • Nazim K. Ekinci
  • Korkut A. Erturk
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    Turkey's exchange rate based stabilization program had collapsed within just eleven months of its implementation. Unsustainable public debt dynamics and fragility of the banking system have been the main reasons blamed for the demise of the program. However, the banking sector fragility became an issue only after the economy was hit buy a liquidity crunch in November 2000. Because the central bank functioned as a currency board, an abrupt reversal of the capital inflow was responsible for the liquidity crunch. The onset of the stabilization program brought down interest rates as expected and thus created ample opportunities for speculative investors to make safe one-sided bets. Thus, in our view the real cause of the capital reversal was profit taking on the part of foreign speculative investors holding government securities who conjectured that falling interest rates had reached their limit at the time.

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    Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2004_01.

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    Length: 20 pages
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:uta:papers:2004_01
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    1. Rodriguez, Carlos Alfredo, 1982. "The Argentine stabilization plan of December 20th," World Development, Elsevier, vol. 10(9), pages 801-811, September.
    2. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614 Elsevier.
    3. Y?lmaz Akyüz & Korkut Boratav, 2002. "The Making Of The Turkish Financial Crisis," UNCTAD Discussion Papers 158, United Nations Conference on Trade and Development.
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