Edited by Erdem Başçı, Sübidey Togan and Jürgen von Hagen
Ricardo Hausmann In ‘Monetary policy challenges for Turkey in the EU accession process’, Fatih Özatay explains Turkey’s ﬁght against ﬁscal dominance and its impressive recovery thanks to its large primary ﬁscal surplus. The author goes on to explain the implementation of inﬂation targeting and its eﬀects and challenges, and how to face up to a new period of monetary dominance in the context of large capital inﬂows and de-dollarization. This is excellent, and a ‘must read’ for anyone interested in the topic. The chapter mainly summarizes policies of the post-crisis period, and lays out future challenges facing Turkey during the ﬁrst phase of the accession to European Union, that is, the candidacy period. The main emphasis is on ﬁscal dominance, and a simple model is developed to emphasize the importance of ﬁscal discipline and market expectations. I will ﬁrst summarize the chapter and leave the discussion of the model to the end. The post-crisis policy actions include: large primary surpluses (6.5 per cent of GDP) and the associated decline in public sector deﬁcit (from approximately 15 per cent to 7 per cent); movement away from foreign currency denominated (and indexed) and ﬂoating domestic debt stock; Central Bank instrumental independence; signiﬁcant restructuring of state and problematic private sector banks; and other structural reforms such as the reforms of the agricultural support system. Monetary policy, in the meantime, has been ‘implicit inﬂation targeting’, so the goal of the Central Bank of Turkey (CBT) is to achieve...
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