There is an ongoing debate over the reasons for the sluggish recovery from the Great Recession in advanced countries. The secular stagnation hypothesis explains the slow recovery by structural demand deficiency. Contrary, the financial cycle drag view argues that the slow growth is associated with the previous boom of a financial cycle emanated from the policies implemented during the Great Moderation. There is also an international dimension of the financial cycle. The global financial cycle (GFCy) includes the co-movements of gross cfapital flows, asset prices and credit growth and is related to unconventional monetary policies undertaken by the major central banks after the Global Financial Crisis (GFC). The GFCy constrains central banks in emerging market economies and letting the exchange rate float is not enough to ensure macroeconomic stability. In this respect, the Central Bank of the Republic of Turkey (CBRT) is not an exception. The GFCy creates certain policy dilemmas for the CBRT between price stability, financial stability and growth. This paper aims to argue these dilemmas and to evaluate global constraints on the CBRT in the aftermath of the GFC.
Keywords: Secular Stagnation, Financial Cycle Drag, Global Financial Cycle, Price Stability, Financial Stability, Monetary Policy, The Central Bank of the Republic of Turkey, Turkish Economy