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An Evaluation of the Effects of Turkey’s New Policy Mix on Financial Stability and Price Stability

Author

Listed:
  • Ilhan, Ali

    (Tekirdag Namık Kemal University)

  • Ozdemir, Metin

    (Bursa Uludag University)

Abstract

After the global financial crisis, it has been seen that many emerging markets like Turkey have developed policy frameworks that allow for price stability and financial stability taken together. The CBRT has implemented new policy mix since November 2010, in response to need to respond flexibly to the problems faced by orthodox inflation targeting and the changes in global capital flows. In this study, it is aimed to evaluate the policies implemented under new policy mix. Analyzing the monetary policy and macroprudential policy practices within the framework of new policy mix, it has seen that policies have shown a successful performance in achieving the intermediate targets that determined in line with financial stability. On the other hand, it should be noted that policymakers -to keep single digit interest rates permanent and sustain economic growth- ignored the internal risks of the new policy mix and delayed the steps that required for normalization of monetary policy. However, the use of macroprudential policy for the purpose of economic growth has created policy dilemmas due to an unstable course of economic growth that caused by to the rise in inflation rate and changing the global policy environment. Although the new policy mix has seen to be successful in achieving financial stability, it has to be stated that due to the delay in normalization and the lack of price stability make it a victim of its own success.

Suggested Citation

  • Ilhan, Ali & Ozdemir, Metin, 2019. "An Evaluation of the Effects of Turkey’s New Policy Mix on Financial Stability and Price Stability," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(4), pages 789-806, July.
    • Handle: RePEc:ris:buecrj:0423
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    More about this item

    Keywords

    Financial Stability; Price Stability; Macroprudential Policy; Monetary Policy; Turkish Economy;
    All these keywords.

    JEL classification:

    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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