Central Bank Of The Republic Of Turkey Research Articles

An evaluation of inflation expectations in Turkey

Expectations of inflation play a critical role in the process of price setting in the market. Central banks closely follow developments in inflation expectations to implement a successful monetary policy. The Central Bank of the Republic of Turkey (CBRT) conducts a survey of experts and decision makers in the financial and real sectors to reveal market expectations and predictions of current and future inflation. The survey is conducted every month. This paper examines the accuracy of these survey predictions using forecast evaluation techniques. We focus on both point and sign accuracy of the predictions. Although point predictions from CBRT surveys are compared with those of autoregressive models, sign predictions are evaluated on their value to a user. We also test the predictions for bias. Unlike the empirical evidence from other economies, our results show that autoregressive models outperform most of inflation expectations in forecasting inflation. This indicates that inflation expectations have poor point forecast accuracies. However, we show that sign predictions for all inflation expectations have value to a user.

Does the central bank directly respond to output and inflation uncertainties in Turkey?

This paper investigates the role of inflation and output uncertainties on monetary policy rules in Turkey for the period 2002:01–2014:02. In the literature it is suggested that uncertainty is a key element in monetary policy, hence empirical models of monetary policy should regard to uncertainty. In this study, we estimate a forward-looking monetary reaction function of the Central Bank of the Republic of Turkey (CBRT). In addition to inflation and output gap variables, our reaction function also includes both the inflation and output growth uncertainties. Our results suggest that the Central Bank of the Republic of Turkey (CBRT) concerns with mainly price stability and significantly responds to inflation and growth uncertainties.

Impact of Short-term Interest Rate on Exchange Rate: The Case of Turkey

After the crises in 2001 inflation targeting regime has been adopted and short-term interest rates have been used as the main monetary policy tool in Turkey. In addition, Central Bank of the Republic of Turkey (CBRT) utilizes short-term interest rates against the sudden rises in dollar rate. In this context, we aim to determine the efficient level of short-term interest rates on dollar rate. Accordingly, using monthly data for the period of 2003:02 – 2015:08, we find no evidence that higher interest rates cause to a weakening of exchange rate, by the frequency domain Granger causality test.

POLITICAL BUSINESS CYCLES IN THE TURKISH ECONOMY: 1977-2001

This study is about political business cycles (PBC) and investigates the Turkish case in the 1977-2001 period. The PBC literature has been developed in the last four-five decades and links economics and politics in several ways. In the first part of the study, developments in the literature are mentioned and the link between New Classical Economics and New Political Economics is introduced. In the second part, Turkish case is analyzed in details to determine whether there have been PBC during the above mentioned period. The results show that there have been political cycles in some macroeconomic variables which are currency issued, broad money (M1), public sector credits and agricultural credits extended by Central Bank of the Republic of Turkey (CBRT), and tax revenues. CBRT has not allowed PBC especially on the targeted variables (CBRT balance sheet size, net domestic assets and monetary base), after 1989. Due to the high legal ceilings of CBRT credits to the public sector, CBRT was not able to limit those credits, especially before 1991 general elections. There had been similar PBC on agricultural credits which had been extended in the 1977-1991 period by CBRT. In addition to the regression analysis, comparative tables and figures for personnel expenditures of State Economic Enterprises (SEEs), agricultural credits which had been extended by Agricultural Bank of the Republic of Turkey (ABRT) in the 1964-1998 period and agricultural prices which had been declared by governments in the 1986-1999 period are provided in the paper. The study provides some evidence to PBC literature and determines which policy instruments could have been used to produce PBC in the Turkish economy. And it is also important to learn which policies can be manipulated in order to prevent the PBC in the future.

Forecasting Euro and Turkish Lira Exchange Rates with Artificial Neural Networks (ANN)

Forecasting of financial data has been a field of research since the efficiency of prediction is essential for strategical decision making. Forecasting exchange rates is not a simple task because it is influenced by many factors and linear models are not able to capture nonlinear relationships in the data. Therefore ANNs have been used in financial forecasting problems since it is capable of handling complex data. The aim of this study is to consider predictive accuracy of ANNs with normalized back propagation using the historical Euro and Turkish Lira (EUR/TRY) exchange rates. The data is obtained from CBRT (Central Bank of the Republic of Turkey) over the period 2010-2013. Several factors affect the accuracy of neural network in the implementation process. Various structures are built by changing the number of neurons, transfer functions and learning algorithms to acquire higher performance. This empirical research has been a comparative study of accuracy in different ANN architectures also in different time horizons. The results are evaluated by MSE (Mean Squared Error) values of each case and it has been found out that ANNs can closely forecast the future EUR/TRY exchange rates.

Managing short-term capital flows in new central banking: unconventional monetary policy framework in Turkey

During the global financial crisis of 2008–2009, both advanced and emerging countries have implemented significant easing policies on monetary and fiscal fronts. Yet, the recovery, especially in advanced countries, was not as quick or strong as expected. These quantitative easing policies, coupled with weak recovery and restricted fiscal positions, have created not only abundant but also excessively volatile global liquidity conditions, leading to short-term and excessively volatile capital flows to emerging markets. To contain potential risks due to such flows, emerging countries have augmented their existing policy frameworks. Central Bank of the Republic of Turkey (CBRT), for example, has introduced two new policy tools in its new monetary policy framework: the asymmetric interest rate corridor and the reserve option mechanism (ROM). From a capital flows perspective, the interest rate corridor helps smooth fluctuations in supply of foreign funds, whereas the ROM helps contain movements in demand for foreign funds. Both policies have been actively used by the CBRT and appeared to be effective in containing financial stability risks stemming from excessively volatile capital flows.

Possible effects of domestic and foreign factors on monetary policy implementation in Turkey: a DSGE-VAR approach

In this paper, we attempt to explore the possible effects of technology, foreign output, price and terms of trade shocks on short-term interest rates in Turkey within a dynamic stochastic general equilibrium-vector autoregressive (DSGE-VAR) framework. In a sense, the primary aim of our paper is to analyse whether the Central Bank of the Republic of Turkey (CBRT) should consider the role of technology, foreign output, price and terms of trade shocks in its monetary policy implementation. Empirical results reveal that the above-mentioned factors have importance for the CBRT, which intends to control economy-wide interest rates in order to maintain price stability.

Relative productivity increases and the appreciation of the Turkish lira

This paper studies the Balassa–Samuelson hypothesis between Turkey and 27 members of the European Union. More specifically, using recently developed cointegration techniques with multiple breaks, we test the relationship between the real effective exchange rate and inter-country differences in the relative productivity of the tradable and non-tradable sectors over the period 1990:Q1–2011:Q2. In recent years, the Central Bank of the Republic of Turkey (CBRT) has emphasized the importance of the B–S hypothesis for Turkey. Our findings, however, suggest that changes in relative productivity have played a limited role in explaining the real effective exchange rate appreciation. In particular, the relationship between the real effective exchange rate and productivity indicated by the Balassa–Samuelson hypothesis is not supported for the post 2001 era in Turkey.

Reserve Options Mechanism and FX Volatility

Reserve Options Mechanism (ROM), which is the option to hold FX or gold reserves in increasing tranches in place of Turkish Lira reserve requirements of Turkish banks, was designed and launched by the Central Bank of the Republic of Turkey (CBRT). ROM is a tool unique to the CBRT and it is aimed to support the FX reserve management of the banking system and to limit the adverse effects of excess capital flow volatility on the macroeconomic and financial stability of Turkey. In this paper, we study the effectiveness of ROM on the volatility of Turkish Lira, and to the best of our knowledge, it is the first analytical paper on investigating the effects of the ROM. The results suggest that ROM is an effective policy tool in decreasing the volatility of Turkish lira in the sample period.

The Role of Monetary Policy in Turkey during the Global Financial Crisis

Turkey is an interesting case study because it was one of the hardest hit emerging economies by the global financial crisis, with a year-over-year contraction of 15 percent during the first quarter of 2009. At the same time, anticipating the fallout from the crisis, the Central Bank of the Republic of Turkey (CBRT) decreased policy rates by an astounding 1025 basis points over the November 2008 to November 2009 period. In this context, this paper addresses the following broad question: If an inflation targeting framework underpinned by a flexible exchange rate regime was not adopted, how much deeper would the recent recession have been? Counterfactual experiments based on an estimated structural model provide quantitative evidence which suggests that the recession would have been substantially more severe. In other words, the interest rate cuts implemented by the CBRT and exchange rate flexibility both helped substantially soften the impact of the global financial crisis.

The Role of Monetary Policy in Turkey During the Global Financial Crisis

Turkey is an interesting case study because it was one of the hardest hit countries by the crisis, with a year-over-year contraction of 15 percent during the first quarter of 2009. At the same time, anticipating this fallout from the crisis, the Central Bank of the Republic of Turkey (CBRT) cut policy rates by an astounding 1025 basis points over November 2008–November 2009. In this context, this chapter addresses the following question: If an inflation targeting framework underpinned by a flexible exchange rate regime was not adopted, how much deeper would the recession have been? Counterfactual experiments based on an estimated structural model provide quantitative evidence which suggests that the recession would have been substantially more severe. In other words, the combination of exchange rate flexibility and the interest rate cuts implemented by the CBRT substantially helped soften the impact of the crisis.

Interest Rate Smoothing and Macroeconomic Instability under Post—Capital Account Liberalization Turkey

This paper considers the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) in the post-financial liberalization and deregulation era. We find that (1) the Bank's interest rate smoothing tendency is the main determinant of its monetary policy in this period, (2) the CBRT does not seem to be responsive to the developments in real economy (output), and (3) although inflation targeting central banks are not supposed to pay attention to exchange rates, the CBRT appears to be slightly responsive to changes in real exchange rate. In answer to the question of whether there is a deeper underlying structural constraint binding the CBRT's “independence,” it seems clear that the global financial system is restricting the ability of the central banks to pursue “independent” policy objectives.

Taylor Rule in Practice: Evidence from Turkey

This paper estimates the backward-looking and forward-looking monetary policy reaction functions of the Central Bank of the Republic of Turkey (CBRT) by considering the post-crisis period from August 2001 to September 2006, with a special emphasis on inflation targeting. Policies which the CBRT applied are analyzed according to the Taylor rule. The empirical results indicate that the CBRT followed the Taylor rule in its interest setting behaviour. In forward-looking models, the response coefficient of inflation and the output gap is greater than that of backward-looking models. The results of forward-looking models reflect, the policies conducted in Turkey. In the post-crisis period, expected inflation has been the main reaction variable for the CBRT. This suggests that monetary policy over the post-crisis period was not accommodating increases in expected inflation. The main conclusion is that ‘Taylor rule’ based monetary policies were effective in inflation targeting in Turkey.

Türkiye Cumhuriyet Merkez Bankası (TCMB) Kütüphanesi

Makalede, Türkiye Cumhuriyet Merkez Bankası Kütüphanesi’nin bugüne kadar geçirdiği aşamalar ve bugün sağlamakta olduğu hizmetler hakkında bilgi verilmiştir.

The effects of exchange rate risk on economic performance: the Turkish experience†

This study examines the effects of real exchange rate risk on the economic performance for an emerging, small open economy: Turkey. When the ratios of the total foreign exchange liabilities of the Central Bank of the Republic of Turkey (CBRT) to: (1) total reserves; (2) the CBRT's reserves; and (3) the CBRT's total Turkish lira liabilities are taken proxy of exchange rate risk, the empirical evidence suggests that the increase in exchange rate risk causes a depreciation in the real exchange rate, an increase in prices and a decrease in output.

Türkiye Cumhuriyeti Merkez Bankası İle Avrupa Merkez Bankasının Bağımsızlık Yönünden Karşılaştırılması

This study examines the criteria that mainly reach a consensus about the independence of the central bank. These criteria are supposed to reflect the independence in both regulation and implementation. This study compares the Central Bank of the Republic of Turkey (CBRT) to the European Central Bank (ECB) in accordance with these criteria. In recent years, Turkey has harmonized its law in line with EU norms to comply with EU standards. This study aims to examine whether CBRT autonomy has reached ECB norms by a comparative method with these criteria. These criteria elected from various articles -the article “Measuring the Independence of Central Banks and Its Effect on Policy Outcome” prepared by Alex Cukierman, B. Steven Webb and Bilin Neyapti; How Independent Is the Central Bank of Turkey by Neyapti B. and Berument H.- are considered ensuring the necessary structure for an independent central bank. As a result of the analytic and empirical comparison, some differences between the CBRT and ECB have been found. Consequently, It can be said that CBRT has almost achieved the same standards as the ECB, except for a few important details.

The implicit reaction function of the Central Bank of the Republic of Turkey

Reviewing the implicit reaction function estimation under different specifications, it appears that the Central Bank of the Republic of Turkey (CBRT) responds to the lagged inflation rate rather than the forward one, M2Y growth is targeted on an annual basis and a serious output targeting policy was implemented while neither real nor nominal depreciation of the foreign currency basket was taken into consideration during the period 1989:07–1997:03. Also, we conclude that the CBRT does not target currency issued, M2, net domestic assets or net foreign assets nor does it take any of the budget deficit measures into account while determining its monetary policy.