Turkey's Great Moderation After 2002

Originally presented at the Annual Conference of Economic Freedom of the World Network
Hotel Lovec, Bled, Slovenia • September 3–5, 2016.
Hosted by the Visio Institute & the Fraser Institute

Published also in The Visio Journal, The Visio Institute, Slovenia, 2016, Number 1, pp. 51– 68. This is revised and updated version of the journal print.

The Turkish and much longer version can be read at;,686.php

ABSTRACT: Turkey’s post–2002 economic performance is remarkable in most of its various aspects. In this paper, it will be argued that this successful performance has a strong similarity to the USA’s Great Moderation. The USA had an economic boom period between 1982–2002 which has been called the Great Moderation by John B. Taylor and some other important economists. As convincingly proved by Taylor’s works on the subject, that happened because the Fed had quite approximately followed Taylor Rule in the conduct of its interest rate policy throughout the moderation years. Beginning with the year 2003, Turkey’s main economic policies have progressed from pure discretionary nature towards rule–like manner. This policy progress has led to the long and sound economic progress that goes on today. However, based on an application of productivity norm of monetary policy to interest rate policy of TCMB, we will be able to diagnose an instability source that appears within Turkey’s economy. This diagnosis provides us a few concrete policy proposals which may support Turkey’s economic development in the future.

Keywords: The Great Moderation; Rule–based policy; Rule–like policy; Turkey’s economy; Productivity norm of monetary policy.


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