The effectiveness of foreign exchange intervention during the Taper Tantrum: Turkish case

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2022-9

Author

Turgut, Savaş

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This study aims to examine the effectiveness of the foreign exchange intervention during the Taper Tantrum. The study covers the theoretical information about the foreign exchange intervention along with the transmission mechanism and the importance of the exchange rate in inflation targeting countries. The effectiveness analysis employs two-stage instrumental variables estimation to evaluate the intervention, especially the foreign exchange sales by the Central Bank of the Republic of Turkey from 2012 to 2016. This period is specifically chosen since the intervention data is published by the Central Bank of the Republic of Turkey on a daily basis. According to the results, excess volatility and depreciation are effective in the intervention decision of the Central Bank of the Republic of Turkey. The depreciation increases the probability of intervention, while volatility decreases. Statistically, intervention is not effective at the exchange rate level of the Turkish Lira. Contrary to the insignificant findings of the intervention in the level of Turkish Lira, it is weakly significant on the volatility. Although the effect is small and weakly significant, foreign exchange sales decrease the volatility.

Subject Keywords

Foreign exchange intervention, Two-stage instrumental variables, Exchange rate, Monetary policy, Effectiveness

URI

https://hdl.handle.net/11511/98663

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

S. Turgut, “The effectiveness of foreign exchange intervention during the Taper Tantrum: Turkish case,” M.S. - Master of Science, Middle East Technical University, 2022.