In addition, emerging-market rates have become extremely sensitive to global monetary policy developments. To contain repercussions on the Turkish economy, we designed a monetary policy framework composed of a wide interest rate corridor and an active liquidity policy. The CBRT’s wide interest rate corridor and the tight liquidity policy strengthened the resilience of the Turkish economy against global shocks and proved to be effective in pursuing the primary objective of price stability. The wide interest rate corridor enables us to raise shortterm rates temporarily above long-term rates when faced with shocks and to keep the yield curve nearly flat or inverted. Accordingly, Turkish lira-denominated long-term rates remain more stable and the economy becomes less sensitive to global long-term interest rate shocks. Moreover, a flat or inverted yield curve constitutes an effective monetary policy stance that supports disinflation. In fact, especially following the strong monetary tightening of early 2014, we all saw that the sensitivity of domestic markets to global interest rates weakened substantially and core inflation indicators have improved significantly (Chart 7). In the upcoming period, following the start of normalization of global monetary policies, volatility in long-term interest rates may decline permanently thanks to forward guidance policies. According to this baseline scenario, the need for a wide interest rate corridor in our country may diminish over time. In that case, we may simplify the operational framework of the CBRT’s interest rate policy gradually.
The combined balance sheets of the then five major investment banks totaled $ trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $ trillion, and total assets of the entire banking system were about $ trillion. This parallel system financed some of these very assets on a very short-term basis in the bilateral or triparty repo markets. As the volume of activity in repo markets grew, the variety  BIS Review 74/2008  1  of assets financed in this manner expanded beyond the most highly liquid securities to include less liquid securities, as well. Nonetheless, these assets were assumed to be readily sellable at fair values, in part because assets with similar credit ratings had generally been tradable during past periods of financial stress. And the liquidity supporting them was assumed to be continuous and essentially frictionless, because it had been so for a long time. The scale of long-term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classic type of run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks.