Abstract:

During the external financial liberalization period, the Turkish economy experienced three sharp reversals (sudden stops) in capital inflows (1994, 1998, and 2001), two of which (1994 and 2001) created quite similar effects. During these two sudden stops, there were collapses in consumption, investment, and national income, contractions in bank credits, and drops in the Istanbul Stock Exchange Index. Both sudden stops were accompanied by currency crises, banking crises, and current account reversals. During both events, the Turkish Lira depreciated sharply, and import decreased while export increased. However, some of these effects did not appear during the 1998 sudden stop. Real depreciation of the Turkish Lira remained limited, and export exhibited decreases instead of increases during this event. Furthermore, the 1998 sudden stop was accompanied by neither a currency nor a banking crisis

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