Erosion of Central Bank independence in Turkey

Abstract

This study provides empirical analysis to show increasing pressures over the Central Bank of Turkey (CBT) throughout the past decade where the CBT gives into such pressures, despite the Central Bank Law, which ensures tool independence. The study suggests that the relations between the government and the CBT reflect recent political changes where the government increased its control over state institutions, following rising costs of losing office. However, this trend not only has economic costs such as a restricted capacity to achieve price stability and sustainable growth but it also limits horizontal accountability of state institutions.