Mitigating Turkey’s Trilemma Tradeoffs

Abstract

We study the trilemma configuration of the Turkish economy for the pe-

Trilemma Triangle and Macroeconomic Policy Preferences in Turkey

“…They also found that the implemented trilemma policies do not deviate substantially from optimal level. Akcelik et al (2014) studied the trilemma hypothesis for the Turkish economy covering the period 2002-2011 by employing Kalman filter to capture the time-varying character of trilemma policy combinations. They first test the validity of trilemma constraint assuming linearity among trilemma indices, and then investigated the role of foreign reserves on the trilemma trade-off.…”

Threshold Effect of Financial Integration on Linkages Between Monetary Independence and Foreign Exchange Reserves

“…For instance, Taguchi (2011) finds that the foreign exchange reserves serve as an anchor for macroeconomic policy and increase market confidence in a country's economic strength. A greater level of foreign reserve alleviates the 'fear of floating' due to smaller impacts from external monetary shocks that transmit via the exchange rate pass-through effect (Akcelik et al, 2014). A higher foreign reserve is therefore reducing the dependence of domestic interest rate to foreign interest rate while the upward pressure from higher foreign reserve to the domestic monetary base decreases with the increasing bank reserves requirement.…”

“…A higher foreign reserve is therefore reducing the dependence of domestic interest rate to foreign interest rate while the upward pressure from higher foreign reserve to the domestic monetary base decreases with the increasing bank reserves requirement. These factors contribute to a positive impact of foreign reserves in achieving a balance between the trilemma issue (stable exchange rate, high financial integration and high monetary independence) in emerging countries which in turn promote the domestic monetary independence (Akcelik et al, 2014). Nevertheless, some studies also proposed an opposite view.…”

“…On the other hand, monetary independence and financial integration are achievable concurrently if a flexible exchange rate regime is adopted, where the exchange rate fluctuations absorb external impacts. This phenomenon has been studied frequently and among them are Obstfeld, Shambaugh and Taylor (2005), Rose (1996), Yu (2012), and Akcelik, Cortuk and Turhan (2014).…”

Evaluating South Africa's Open Economy

“…Country‐specific empirical studies conducted on the trilemma trade‐off include Akcelik et al . (), who examine the macroeconomic trilemma for Turkey using a Kalman filter and find strong evidence of the trilemma trade‐off holding. They also find that the role of foreign reserves has a significant dampening effect on the trilemma trade‐off in Turkey (Akcelik et al ., ).…”