Reserve Options Mechanism and FX Volatility

Oduncu, Arif; Akcelik, Yasin; Ermişoğlu, Ergun

doi:10.2139/ssrn.2230354

Cited by 11 publications

(7 citation statements)

References 13 publications

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“…There have been numerous studies that provide an overview on the recent policy framework and present supportive anecdotal evidence, e.g., Başçı and Kara (2011), Kılınç et al (2012), , and Aysan et al (2014), as well as empirical works that focus on a single prudential policy tool, e.g., Binici et al (2013), Değerli and Fendoğlu (2014), Küçüksaraç and Özel (2012) and Oduncu et al (2013). In this paper, we take an empirical stand, and study the policy framework in general with a focus on its role in containing cross-border capital flows.…”

Section: Introductionmentioning

confidence: 99%

Macroprudential Policies as Buffer Against Volatile Cross-Border Capital Flows

Aysan

Fendoğlu

Kılınç

2015

Singapore Econ. Rev.

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This paper investigates the effectiveness of macroprudential policies introduced by Turkey in late 2010. The unprecedented quantitative easing policies of advanced countries after the global financial crisis have presented serious financial stability concerns for most emerging countries including Turkey. To cope with these challenges, Turkey has devised new policy tools such as asymmetric interest rate corridor and reserve option mechanism. From the perspective of capital flows, the interest rate corridor works mainly through stabilizing supply of foreign funds, and the reserve option mechanism through decreasing the sensitivity of equilibrium exchange rate to shifts in the demand for foreign funds. Using a large panel of 46 countries and employing [Bruno and Shin (2013a). Capital flows, cross-border banking and Global liquidity. Working paper, Princeton university; Bruno and Shin (2013b). Assessing macroprudential policies: Case of Korea. Working paper, Princeton university] methodology, we investigate whether the new policy framework in Turkey has been successful in cushioning the economy from volatile cross-border capital flows from a comparative perspective. The results show that, after controlling for a set of domestic and external variables and relative to a group of advanced and emerging countries, cross-border capital flows to Turkey have been less sensitive to global factors after the implementation of macroprudential policies.

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Section: Introductionmentioning

confidence: 99%

Macroprudential Policies as Buffer Against Volatile Cross-Border Capital Flows

Aysan

Fendoğlu

Kılınç

2015

Singapore Econ. Rev.

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“…Employing the tools, the CBRT eventually points at influencing price stability and financial stability (Kara, 2012). ROM seeks to the FX reserve executive of the banking system to increase FX reserves of CBRT and limit the negative outcome of abundant capital flow fluctuation on Turkey's macroeconomic and financial stability of Turkey (Oduncu et al, 2013a). This new policy tool is designed to reduce the negative outcome of the extra fluctuation in capital movements on the macroeconomic and financial stability (CBRT, 2013) by favouring banks to easily have a particular cut of their necessary reserve conditions for the Turkish lira liabilities in a foreign currency, either U.S. dollars, euros, or gold in increasing tranches since the end of 2011 (Uysal, 2017;Oduncu et al, 2013b).…”

Section: New Monetary Policy Frame and Reserve Option Mechanism-rommentioning

confidence: 99%

Impact of Reserve Option Mechanism on Exchange Rate Volatility During the FED’s Tapering Period

Demirbaş

Can

2022

Journal of Central Banking Theory and Practice

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This study investigates the effectiveness of ROM. We conducted the GARCH (1,1) Model to determine whether ROM contributed to decreasing the volatility of USD/TL exchange rate for the period 2013-2014. We construct four Models where four different variables are separately used that represent the ROM tool, i.e. the amount of FX reserves of CBRT via ROM, and the share of the FX reserves via ROM in Gross FX Reserves of CBRT. Our findings are convincing to say FX facility and the ratio of utilization for the FX facility to ensure the results are statistically meaningful during this period.

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“…The CBRT increases the RRR to control excessive credit growth in the case of high capital inflows, and in the case of capital outflows, the CBRT eases the banking system's credit facilities by decreasing the RRR. Thus, the RRR has been implemented in a countercyclical manner, similar to the interest rate corridor system (Mimir et al, 2013;Oduncu, Akcelik, & Ermisoglu, 2013b). Moreover, to extend the maturities of domesticand foreign-currency-denominated deposit accounts, the CBRT has been differentiating the RRR based on the maturity structure of these deposits, imposing lower reserve requirements on higher maturity deposits to encourage banks to hold long-term deposits.…”

Section: The Cbrt's New Policy Toolsmentioning

confidence: 99%