Resilience of the Turkish Economy During the Global Financial Crisis of 2008

The authors explore the sources of the resilience of the Turkish economy to the global financial crisis of 2008. They first show that financial factors and fundamentals were very strong in Turkey before the crisis, and monetary and fiscal policies responded strongly to the crisis in a countercyclical way. They find that these strong fundamentals and prudent economic policies are reflected in the risk premium movements. Emerging market bond index (EMBI) spreads for Turkey increased slightly during the 2008 crisis and decreased back to the normal levels quickly. This was in large contrast to the crisis in 2001, when spreads increased significantly due to the weak fundamentals and decreased very slowly. Second, the authors quantitatively analyze the effects of risk premium movements during the crisis in a small open economy framework. They find that the risk premium observed in 2008 could not generate large movements in output, validating the point that the Turkish economy was resistant to the financial factors of the crisis.