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Turkish Currency Crisis of 2000-1, Revisited

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  • Nazim K. Ekinci
  • Korkut A. Erturk

Abstract

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.

Suggested Citation

  • Nazim K. Ekinci & Korkut A. Erturk, 2004. "Turkish Currency Crisis of 2000-1, Revisited," Working Paper Series, Department of Economics, University of Utah 2004_01, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2004_01
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    File URL: http://economics.utah.edu/research/publications/2004_01.pdf
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    References listed on IDEAS

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    1. Y?lmaz Akyüz & Korkut Boratav, 2002. "The Making Of The Turkish Financial Crisis," UNCTAD Discussion Papers 158, United Nations Conference on Trade and Development.
    2. Rodriguez, Carlos Alfredo, 1982. "The Argentine stabilization plan of December 20th," World Development, Elsevier, vol. 10(9), pages 801-811, September.
    3. Lance Taylor, 2001. "Capital Market Crises: Liberalization, Fixed Exchange Rates and Market-Driven Destabilization," Palgrave Macmillan Books, in: Ha-Joon Chang & Gabriel Palma & D. Hugh Whittaker (ed.), Financial Liberalization and the Asian Crisis, chapter 3, pages 21-39, Palgrave Macmillan.
    4. 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.
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    Cited by:

    1. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
    2. Tamgac, Unay, 2011. "Crisis and self-fulfilling expectations: The Turkish experience in 1994 and 2000-2001," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 44-58, January.
    3. Josef Pöschl & Hermine Vidovic & Julia Wörz & Vasily Astrov, 2005. "Turkey:Macroeconomic Vulnerability,Competitiveness and the Labour Market," Working Papers 2005/5, Turkish Economic Association.

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