Reserve Options Mechanism and Exchange Rate Volatility: An Implementation for Turkey

Authors : Lokman KANTAR

Pages : 60-72

View : 18 | Download : 12

Publication Date : 2020-12-31

Article Type : Research Paper

Abstract :Due to the flexible monetary policies implemented during the crisis, low-interest rates obtained funds has moved towards countries with emerging economies and that caused speculative attacks insert ignore into journalissuearticles values(the volatility in exchange rates, capital market etc. to make short-term trades.); on countries such as Turkey. Therefore, Turkey has developed a set of measures to ensure price stability along with financial stability. One of these measures is the Reserve Option Mechanism, which enables TL required reserves to be held in foreign currency. Foreign currencies entering the country through the Reserve Options Mechanism will not enter the economy directly, and some of this money will be kept by the CBRT as required reserves by banks. Thanks to this mechanism, it is aimed to reduce the volatility in exchange rates. In this study, the effect of Reserve Options Mechanism on exchange rate volatility has been examined. In this framework, the effect of the GARCH approach used in modelling volatility in the 2011-2016 period and the Reserve Option Mechanism on exchange rate volatility was researched. As a result of the study, it is concluded that the Reserve Option Mechanism insert ignore into journalissuearticles values(ROM); variable decreases the volatility.
Keywords : Reserve Options Mechanism, Reserve Options Coefficient, Volatility, GARCH, Global Crisis