ABSTRACT
Like Ecuador, Turkey has experienced substantial monetary and economic turbulence over the past several decades. Infl ation, in particular, has been an endemic problem since the mid-1970s. The country’s infl ation rate increased sharply in conjunction with the fi rst OPEC oil price shock in 1973-74 and an international embargo on Turkey at that time associated with confl ict over the island of Cyprus. Though it never reached the level of hyperinfl ation over this period, infl ation remained persistently high for nearly four decades, averaging 20 percent during the 1970s, 40 percent in the early 1980s, and over 80 percent during the 1990s. A fragmented political system and weak coalition governments that were unable to resist distributional pressures resulted in persistently high fi scal defi cits that were partly monetized: the government relied on seigniorage revenue that averaged about 2.5 percent of GDP during these years. Not surprisingly, output growth was very erratic during this period: it was high by international standards for most of the 1980s, but became unstable after the late 1980s. Income per capita grew only by 1.5 percent in the 1990s.
