TITLE

THE ROLE OF FISCAL DOMINANCE ON THE EFFECTIVENESS OF MONETARY POLICY: AN EVALUATION OF 2002-2012 PERIOD IN TURKEY

AUTHOR(S)
FİLİZ BAŞTÜRK, Meryem
PUB. DATE
September 2015
SOURCE
Journal of Management & Economics Research;Sep2015, Vol. 13 Issue 3, p40
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Monetary policy loses its function when the public debt of an economy is high and short-term and a large amount of this debt is foreign currency denominated. In such a case, an increase in shortterm interest rates applied as a tool of tight monetary policy to reduce inflation leads to higher risk premiums and generates capital outflow. Thus, such a policy increases the inflation, causing an unexpected result. In this regard, fiscal dominance can be claimed to play a decisive role in the effective operation of monetary policy. In Turkey, fiscal dominance reached very high levels especially in the aftermath of the crisis of February 2001. This study analyze monetary policies adopted in Turkey between 2002 and 2012 according to specific periods. Within this framework, this study firstly investigates the period when implicit inflation targeting regime was implemented and fiscal dominance was high. Secondly, it examines the period when explicit inflation targeting regime was adopted, followed by the period when monetary policy took price stability along with financial stability into consideration. This classification will enable to evaluate the impact of fiscal dominance indicators on the implementation of monetary policy in Turkey for the period analyzed.
ACCESSION #
111632203

 

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