Macroprudential regulations as counter-cyclical tools: The case of Turkey

Gezici, Armagan; Erten, Bilge

Abstract

This paper analyzes the effectiveness of macroprudential regulations adopted by the Central Bank of Turkey in the aftermath of the global financial crisis. In particular, we examine the effects of the domestic policy rate and the reserve requirements on the volume and composition of capital flows, the interest rate differentials, the real exchange rate, and the private bank credit growth. Our findings indicate that the reduction in the policy rate declined the short-term capital inflows, and this direct effect was complemented by the indirect effect of the reserve requirements; however, the estimated effects were temporary. The use of reserve requirements also allowed for higher interest rate differentials, providing the central bank more policy autonomy in the short run, and it had a slight effect on the real exchange rate. Finally, the reserve requirements-particularly those on foreign currency liabilities-were effective in reducing rapid private credit growth and ensuring financial stability. However, the rising share of short-term debt, and the heavy reliance on external financing for economic growth continue to pose challenges for the sustainability of the macroeconomic stability in Turkey.

• Presentation Conference Type: Conference Paper (unpublished)
• Conference Name: URPE at ASSA 2014
• Start Date: Jan 3, 2014
• End Date: Jan 3, 2014
• Publicly Available Date: Mar 13, 2023
• Public URL: https://uwe-repository.worktribe.com/output/10549644
• Publisher URL: https://urpe.org/conferences-events/urpe-at-the-assas/past-programs/
• Related Public URLs: https://urpe.org/wp-content/uploads/2019/03/2014_Philadelphia_ASSA.pdf