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The financial crisis of 1994 and the april 5 austerity plan

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Chapter Summary

Attempting to address these and other related issues, this chapter begins with an overview of inflationary dynamics and the inflationary trend in Turkey. The study suggests that Turkish inflation has a strong long-memory component and will therefore initially resist disinflationary policies. The study provides statistical evidence that increased inflation significantly raised inflation uncertainty in Turkey between 1960 and 1998 and in various sub-samples. The study speculates that the problems of time inconsistency, the lack of fiscal discipline were all contributing factors that led to opportunistic behavior and subsequently to periods of high inflation and inflation uncertainty. Second, it was no longer possible to maintain the status quo without additional external financing. The much-anticipated stabilization package was announced on April 5, 1994. Profiling a classic austerity plan that combines monetary, fiscal, and incomes policies, the package attempted to contract the economy to improve the imbalances in the product and financial markets.

Keywords: 1960 and 1998; 1994; April 5; austerity plan; financial markets; Turkey



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