Cortuk, Orcan and Singh, Nirvikar (2011): Turkey’s trilemma trade-offs: is there a role for reserves?
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In this paper, we study the trilemma configuration of the Turkish economy. The paper starts by empirically testing the Mundell-Fleming theoretical concept of an “impossible trinity” (trilemma) for Turkey, following the Aizenman, Chinn and Ito (ACI) approach. This includes calculating the trilemma indices and investigating their evolution over the period of 1998Q1-2010Q4, which is split into three sub-samples according to the Turkey’s macroeconomic policies. We also introduce alternative empirical techniques in order to deal with possible misspecification problems detected in the ACI approach. These techniques include employing additional terms in the regression, Two Stage Least Squares, General Method of Moments and Kalman filtering. The analysis supports the conclusion that the trilemma trade-offs are binding for Turkey for each sub-period. Besides, it shows how contributions of financial integration and monetary independence have increased from the first period to the last, with corresponding limitations on exchange rate stability. The analysis continues by exploring the implications of changes in the trilemma indices for macroeconomic outcomes. Accordingly, it reveals evidence that financial integration and monetary autonomy together with corresponding loss of exchange rate stability have impacts on growth volatility, inflation and inflation volatility throughout 1998-2010, though these effects might differ for each sub-period. Finally, it finds that there is a key role for raising international reserves as trilemma trade-offs and their effects on macroeconomic variables have been mitigated with their accumulation
|Item Type:||MPRA Paper|
|Original Title:||Turkey’s trilemma trade-offs: is there a role for reserves?|
|English Title:||Turkey’s Trilemma Trade-offs: Is There a Role for Reserves?|
|Keywords:||Financial trilemma; Turkish economy; International reserves; Monetary policy; Capital account opening|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance
F - International Economics > F3 - International Finance
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
|Depositing User:||Orcan Cortuk|
|Date Deposited:||05. Oct 2011 13:53|
|Last Modified:||13. Feb 2013 05:08|
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