Fiscal dominance and inflation targeting: lessons from Turkey

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Ersel, Hasan and Özatay, Fatih (2008) Fiscal dominance and inflation targeting: lessons from Turkey. Emerging Markets Finance and Trade, 44 (6). pp. 38-51. ISSN 1540-496X

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Official URL: http://dx.doi.org/10.2753/REE1540-496X440603


In the aftermath of the 2000-2001 crisis in Turkey, the banking sector was in turbulence, requiring immediate action. The rescue operation significantly increased the public debt ratio with respect to gross domestic product. At the beginning of 2002, the central bank of Turkey announced that it was going to implement an implicit inflation-targeting regime. The fiscal dominance caused by the high debt ratio severely constrained the conduct of monetary policy. Other obstacles to the conduct of monetary policy included a high level of exchange rate pass-through, inflation inertia, and a weak banking sector. This paper offers an account of the monetary policy experience of Turkey in the postcrisis period and provides lessons for policymakers in other emerging markets.

Item Type:Article
Uncontrolled Keywords:fiscal dominance; financial sector; exchange rate pass-through; inflation inertia; inflation targeting
ID Code:11395
Deposited By:Hasan Ersel
Deposited On:24 Mar 2009 10:45
Last Modified:22 Jul 2019 15:27

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