The role of expectations for currency crisis dynamics—The case of the Turkish lira

Abstract

This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding GDP growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule.

Multimodal online dissident culture in Instagram: A critique of the Turkish economy

“…The drop in the value of the Turkish lira intensified in 2021 and continued in 2022, with the loss of 44% of its value against the dollar in 2021 and 30% in 2022 (Reuters, 2023). The Turkish currency crisis started to accelerate in 2018 and has brought increased domestic uncertainty (Beckmann and Czudaj, 2023) in the market and an enormous fall in purchasing power in Turkey. The transition to a quasi-authoritarian presidential system in 2017 was marked by the neglect of checks and balances and a solidifying of the massive power of presidential rule that tends to despise conventional economic management (Aydintasbas, 2021).…”