The role of expectations for currency crisis dynamics—The case of the Turkish lira

This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures

surrounding gross domestic product (GDP) growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our

results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations

regarding monetary policy have changed throughout the sample period. In line with, a gradual adjustment of expectations professionals have accounted for

the violation of the Taylor rule.

Kiel Institute Expert