The Political Economy of Central Banking in Turkey: The Macroprudential Policy Regime and Self-Undermining Feedback

Bridging international political economy and public policy and administration research on central banking

“…In this respect, by untangling political tensions and struggles in the policymaking process, assessing how politicians support or undermine monetary policy decisions, and analyzing how stakeholders perceive and evaluate central banking activity, we uncover the complex dynamics that influence central bank behavior. Moreover, these investigations reveal the forces operating behind the strength or weakness of a monetary policy regime in diverse contexts (Yağcı, 2018). Relatedly, contextualization of the global diffusion of ideas and norms is critical in enhancing our understanding of why and how central bank activities shape and influence social, political, and economic life in different countries (Bakır, 2017).…”

“…On the other hand, the downside of the macroprudential measures would be a dampening of economic growth to reduce risks in the economy. The sharp decline of economic growth in 2012 after high growth rates in 2010 and 2011 made the CBRT the main culprit in the eyes of politicians (Yağcı, 2018). This was reinforced by the firmly held ideas by the then Prime Minister and later President Recep Tayyip Erdoğan.…”

“…In addition to his assertion that high interest rates would stall private sector investment and dampen economic growth (Dombey and Guler 2015), he sees interest rates as a 'tool of exploitation' (Pitel, 2018) and 'mother of all evil' (Coşkun, 2019), indicating a religious standpoint. His constant criticisms against high interest rates have forced the CBRT to use the asymmetric interest rate corridor to circumvent political pressure by maintaining a lower policy interest rate while keeping the real market funding rate or the weighted average funding rate determined by the CBRT's liquidity policy at a much higher level (Yağcı, 2018). In other words, the policy interest rate became irrelevant for market players, and the credibility of the CBRT was significantly undermined.…”

Why Do Populist Governments Change Their Policies: Evidence from Turkey

“…Although the judicial operations were highly effective in breaking the resistance of the targeted groups by increasing the costs of siding with the opposition, the government did not well calculate that the resentment may disperse into the streets as happened during the Gezi Park protests in June 2013. The government also targeted secular industrialists, organized under TUSIAD, and expressed open support for conservative MUSIAD (Yağcı, 2018). Second, the AKP government heavily invested in (Sunni) religious organizations to make religion more visible in both public and private spheres.…”

Unfolding macroprudential mechanisms: central bank-led mechanisms during the post-Global Financial Crisis Turkish experience

“…In the post-GFC context, there has been renewed interest in the political economy of central banking and macrofinancial stability-related policies in Turkey (Akçelik et al 2013;Çoban 2018, 2019;Başçı and Kara 2011;Kara 2016;Yagcı 2017Yagcı , 2018. Moreover, while we know that multiple mechanisms have operated through regulatory practices informing macrofinancial stability following the institutionalization of macroprudential ideas during the June 2011-July 2016 period (Bakır 2021), our article complements this growing literature by conceptualizing Turkey's transition to the macroprudential framework and decoding the Central Bank's policy practice leading to the establishment of the Financial Stability Committee (FSC) in June 2011.…”