The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis

This study has two purposes. First, it attempts to improve the literature on foreign exchange interventions of the central banks for the emerging market economies, which have not been studied in details. The Turkish economy in the post-crisis period constitutes a good example in this context. Second, it proposes a new methodology, a time-varying parameter model, to analyze the effectiveness of the foreign exchange interventions. When the results from such an exercise are compared with the ones obtained from an event-study analysis, we find that the purchase-based interventions seem to be successful especially after the financial markets were stabilized. In that sense, we detect an asymmetry regarding the effectiveness of interventions. About the relationship between the interest rates and the exchange rates, we find that the uncovered interest rate parity condition operates in an unconventional way supporting the views put forth by the new emerging markets literature.