The Turkish Approach to Capital Flow Volatility

Akcelik, Yasin; Başçı, Erdem; Ermişoğlu, Ergun; Oduncu, Arif

doi:10.1057/9781137427687_3

Cited by 5 publications

(4 citation statements)

References 15 publications

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“…The CBRT claimed that the framework was quite successful in that it ensured a "soft landing" for the Turkish economy in 2011 by altering the composition of inflows, leading to a depreciation of the Turkish lira vis-à-vis other EM currencies and reducing the current account deficit. 97 While these moves contained the risk of a sudden stop and engineered a "rebalancing in the economy," they came with economic and political costs. Economically, although Turkey continued to receive handsome capital inflows, the GDP growth declined in 2012.…”

Section: Cbrt's Managed Uncertainty Frameworkmentioning

confidence: 99%

Financialized Growth and the Structural Power of Finance: Turkey's Debt-Led Growth Regime and Policy Response after the Crisis

Zayim

2022

Politics & Society

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This article analyzes the Turkish central bank's “managed uncertainty” policy after the global financial crisis. During 2010–14, the central bank intentionally generated uncertainty around short-term interest rates, using the level of predictability faced by financiers as a tool to buffer the domestic economy from volatile capital flows. How did the central bank implement this unconventional policy? Building on interview data and public texts, the article argues that the surge in capital inflows after the crisis sourced a debt-led, financialized economic growth model and deepened Turkey's reliance on external financing. The central bank could diverge from the financial sector's policy preferences despite Turkey's increased foreign capital dependence because the availability of low-cost, ample, private funding opportunities temporarily expanded policymakers’ room to maneuver. However, operating vis-à-vis an unsustainable growth regime, the central bank had to revert to orthodoxy in 2014 due to declining investor confidence and capital flight. This article contributes to the literature on the structural power of finance by demonstrating how finance derives its structural power from funding financialized growth, not productive investments. It also shows that financial structural power varies based on the source and cost of external financing beyond the degree of foreign capital dependence.

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Section: Cbrt's Managed Uncertainty Frameworkmentioning

confidence: 99%

Financialized Growth and the Structural Power of Finance: Turkey's Debt-Led Growth Regime and Policy Response after the Crisis

Zayim

2022

Politics & Society

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“…Similarly, Karimo and Tobi (2013) point out that a stable macro-economic environment is a sound predictor of the variability of foreign portfolio flows in the Nigerian economy. Akçelik et al (2015) thus recommend an appropriate economic policy mix to address the risks associated with foreign portfolio investment vulnerabilities.…”

Section: A Brief Review Of the Literaturementioning

confidence: 99%

Modelling short-run and long-run predictors of foreign portfolio investment volatility in low-income Southern African Development Community countries

Mamvura

Sibanda

2020

Journal of Economic and Financial Sciences

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Orientation: This study examined the main predictors of net foreign portfolio investment volatility in low-income Southern African Development Community (SADC) countries. Based on the World Bank data (July 2014), the selected countries are Zimbabwe, Zambia, Malawi, Lesotho, Madagascar, Mozambique, DRC, Swaziland and Tanzania.Research purpose: The purpose of this study is to establish the main drivers of net foreign portfolio investment volatility in low-income SADC countries.Motivation for the study: This study is also motivated by mixed findings in foreign portfolio investment debate on why capital flows are more volatile and difficult to manage in developing than in advanced economies. Although it is acknowledge that developing markets are characterised by the poor quality of financial institutions in economies with weak macroeconomic fundamentals, which ultimately pose a greater risk of sudden stops or reversal of foreign portfolio flows, findings remain inconclusive on what actually drives net foreign portfolio investment volatility in low-income countries.Research approach/design and method: The Panel Autoregressive Distributed Lag (P-ARDL) model is employed to determine the short- and long-run drivers of such investment volatility in these countries. The study uses quarterly data for the period spanning 2000 to 2015.Main findings: The findings reveal that all the variables in the model, namely money supply, world output, general prices, real gross domestic product, domestic interest rates and international interest rates, are significant predictors of net foreign portfolio investment volatility. However, positive long-run effects are observed from world gross domestic product, real gross domestic product, prices and money supply, whilst domestic interest rates and international interest rates displayed a negative association in the long run. These findings are consistent with both the economic literature and the empirical literature, which suggest that an increase in interest rates or higher interest rates affects foreign portfolio investment. Similarly, in the short run, all the variables employed in the model are the main predictors of net foreign portfolio investment volatility in low-income SADC countries.Practical/managerial implications: Policy-makers should embark on policies and programs that promote economic performance in order to attract stable foreign portfolio flows that will lead to stable markets and reduce volatility in the economy. Policy consistency is thus, recommended to attract investors to the region and ensure that stock and bond markets are viable and stable.Contribution/value-add: Unlike other existing studies, the measure of volatility employed in this is considered superior as it is based on net portfolio flows which reflect changes in an economy’s overall current account position. The study informs and advances the current discourse on the causes of capital flow volatility in the field of investment theory and practice.

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“…2 For details of the CBRT's policy mix, see Başçı and Kara (2011);Akçelik, Başçı, Ermişoğlu and Oduncu (2013). 3 These days are the following; 29.12.11-09.01.12, 23.03.12-29.03.12, 12.04.12-17.04.12, 04.05.12-11.05.12, 18.05.12-25.05.12 and 31.05.12-04.06.12.…”

Section: Figure 1: Additional Monetary Tighteningmentioning

confidence: 99%

Effects of additional monetary tightening on exchange rates

et al. 2014

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Since the global financial crisis, Central Banks have used various policy tools to sustain financial stability besides price stability. Additional Monetary Tightening is one of these tools that the Central Bank of the Republic of Turkey used in 2011-2012. The effects of this tool on the exchange rate are the main theme of this paper. Our analysis indicates that additional monetary tightening has a significant role in reducing volatility in the exchange rate. It is also shown that during the days of additional tightening Turkish Lira appreciated against the emerging market currencies.

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The Turkish Approach to Capital Flow Volatility

Cited by 5 publications

References 15 publications

Financialized Growth and the Structural Power of Finance: Turkey's Debt-Led Growth Regime and Policy Response after the Crisis

Financialized Growth and the Structural Power of Finance: Turkey's Debt-Led Growth Regime and Policy Response after the Crisis

Modelling short-run and long-run predictors of foreign portfolio investment volatility in low-income Southern African Development Community countries

Effects of additional monetary tightening on exchange rates

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