Digital Commons Network^™

The Impact Of Interest Rate Changes By Federal Reserve On Turkey, King Banaian, Mustafa Goktug Kaya, Orhan Kemal Kaplan

Economics Faculty Publications

Central banks play an important role in the direction of capital flows through the interest rate channel. Capital flows also impact the exchange rate, which are important goals of monetary policy. Due to the prominence of the U.S. Dollar in international trade, decisions made by the Federal Reserve Bank (FED) also affect the decisions of Central Banks of other countries. During the 2008 financial crisis the FED reached the zero-bound of its policy rate (the federal funds rate) and engaged in quantitative easing. This lead to capital outflows from developing countries, who then raised interest rates defensively to protect their …