2020 IB Extended Essays

-Analysis of UK’s Contractionary Monetary Policy with comparison to Turkey

For the aim of exploring the extent of which the contractionary monetary policy impacted the Turkish Lira. The changes to the determinants of currency value are compared to another use of monetary policy. The decision made by the Turkish Central Bank will be compared to the decision made by the United Kingdom(UK) as they increased their interest rates from “0.5” to “0.75” in August 2018. (Anthony, 2018) Although both countries implemented a contractionary demand side policy, the change between interest rates were relatively different for both countries. It is acknowledged that Turkey’s interest rate increase was by “6.25%”, compared to the UK having a rise of “0.25%”. The previous quarter before August 2018, the UK went through a weak patch at the start of the year due to severe weather conditions impacting output within the economy. The recovering economy was at a consistent rate which can be seen in Figure 11 as GDP increased from the start of 2018(2.4%, February 2018) to (2.7%, July 2018). The UK was cautious about the rapid increase that could be soon threatened by a potential departure of the European Union, which can cause a gradual recession in the economy. Therefore, they have used contractionary monetary policy in order to slow the economy down and decrease the value of a possible recession. (The Guardian, 2018)

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