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Theoretical and Applied Economics
No. 4 / 2019 (621), Winter

Turkey’s macroeconomic policy challenges in the aftermath of the 2018 crisis: A sectoral financial balances analysis

Kautilya Entrepreneurship & Management Institute & Foundation to Aid Industrial Recovery,Bengaluru, India
Narsee Monjee Institute of Management Studies, Bengaluru, India

Abstract. In August 2018, Turkey experienced a major economic crisis when its exchange rate depreciated by around 40 percent in the course of just a few days. This led to a credit bust that soon dragged Turkey into a recession. This paper analysis Turkey’s predicament using the stock-flow consistent sectoral financial balances (SFB) model to delineate and evaluate the policy options open to Turkey at a juncture where the private sector has commenced a process of deleveraging or in other words, reducing its net financial accumulation of liabilities. Since the crisis erupted, Turkey has tightened both monetary and fiscal policies to control accelerating inflation and the depreciating lira, which would then – it is hoped – revive investment and exports. However, prevailing uncertainties on account of deteriorating Turkish-US relations may prove a dampener on the success of these policies.

Keywords: sectoral financial balances, Turkey, currency crisis, credit leveraging, deleveraging.

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016


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