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.
Liberalization programs are aimed at the removal of the restrictions placed upon the working of the market mechanism. These restrictions may be broadly classified under two categories. The first category of restrictions is aimed at the control of domestic markets, particularly financial markets. The underlying idea behind liberalization programs is that the removal of such restrictions will have a positive impact on the efficiency of domestic markets. The second group of restrictions are of an indirect nature and are aimed at the protection of the domestic economy from the effects of developments in international markets. Liberalization programs advocate the removal of the restrictions that prevent the integration of these markets. The removal of these restrictions is expected to increase competition, and enhance efficiency in resource allocation.
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