Reserve Option Mechanism : Does it Work as an Automatic Stabilizer?
Central Bank of the Republic of Turkey (CBRT) designed and implemented a new scheme since end-2011, called reserve options mechanism (ROM) in order to alleviate the adverse impact of capital flow volatility on the domestic economy. Although there are numerous studies on the mechanics of ROM, there has been no attempt to investigate the determinants of the ROM utilization in practice. In this paper, we aim to fill this gap by using bank-level data to assess the behavioral aspects of ROM. Our results suggest that the relative cost of Turkish lira funding to foreign currency funding as well as the reserve option coefficients set by the CBRT largely explains the variations in the ROM utilization. We find that the most relevant proxy for the cost of Turkish lira funding for banks is overnight money market interest rates and the weighted average cost of CBRT funding. Moreover, foreign currency liquidity does not seem to be a significant parameter in driving the utilization of ROM. We argue that the systematic policy induced movements in the short term domestic interest rates—higher during outflows, lower during inflows—may undermine the automatic stabilizer feature of ROM. And we propose an adjustment in the remuneration of reserve requirements to strengthen the automatic stabilizer effect of ROM.
Reserve Options Mechanism and Computation of Reserve Options Coefficients (Rezerv Opsiyonu Mekanizmasi ve Optimal Rezerv Opsiyonu Katsayilarinin Hesaplanmasi)
[EN] This note evaluates the option to hold Turkish lira reserves in foreign currency and gold within the context of reserve options mechanism (ROM). We exemplify calculation of reserve options coefficient(s) leaving banks indifferent between the reserve option and other main funding sources that can be used for holding reserve requirements. The breakeven reserve options coefficient(s) mainly depends on interest rates on foreign currency and Turkish lira funds, Libor, Turkish lira swap rates and reserve requirement ratio on foreign funds. The breakeven reserve options coefficient(s) are highly sensitive to changes in interest rates on funds denominated in foreign currency. [TR] Bu notta son donemde TCMB tarafindan aktif bir politika araci olarak kullanilan rezerv opsiyonu mekanizmasi (ROM) kapsaminda TCMB’nin Turk lirasi zorunlu karsiliklar icin doviz ve altin bulundurma imkani degerlendirilmistir. Daha sonra imkani diger fonlama maliyetleriyle kayitsiz birakan rezerv opsiyonu katsayi degerlerinin hesaplanma yontemi ele alinmis ve bu hususta bir ornek sunulmustur. Kritik katsayi degerlerinin temel olarak; yabanci para ve Turk lirasi fon bulma maliyetlerine, Libor faiz oranina, Turk lirasi swap faiz oranina ve yabanci para zorunlu karsilik oranina bagli oldugu gozlenmektedir. Katsayi degerinin ozellikle yabanci para cinsi borclanma maliyetlerine hassas oldugu dikkat cekmektedir.
The Use of Qualitative Information in Macro-Economic Policy Analysis
The majority of macro-economic policy models takes for granted that conflicts among objectives can be assessed by means of a tradeoff analysis. Such tradeoffs imply that sacrifices and benefits of various impacts of decisions can be measured on a cardinal scale, so that a conventional macro-economic utility or welfare analysis can be applied.