2020 IB Extended Essays

Conclusion:

The use of contractionary monetary policy to raise interest rates from 17.75% to 24% achieved Turkey’s aim of being more competitive in the global market as TRY value increased, current account and trade balance benefited. However, to address the extent of the impact of interest rates on the TRY, the determinants of currency appreciation were compared to the UK. Turkey demonstrated a greater impact on GDP, inflation, current account, and exchange rate. To further examine the extent of how exogenous variable(interest rates) impacted the endogenous variable(currency value), the concept of the negative multiplier was introduced. Since Turkey had a lower MPC, higher MPS and a higher multiplier value, Turkey experienced a larger impact of contraction in the economy leading to currency appreciation, compared to the UK. As a result, the increase in Turkish interest rates from 17.75% to 24% in 2018, impacted the Turkish Lira relatively positively in US dollar terms.

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