Macro prudential policies in EMEs are even more important than before due to the divergent monetary policies in AEs. 6  BIS central bankers’ speeches  The Central Bank of Turkey’s roadmap of policy actions before and after global monetary policy normalization The Turkish economy has shown a relatively robust performance in the face of major external and internal shocks. GDP growth is estimated at around 4 percent in 2015 with an expected gradual strengthening of economic activity in 2016 and in 2017 (Figure 12). The rise in GDP growth rate observed in 2015 is mostly attributed to strong private consumption. Private investment recorded a moderate recovery. The challenging external conditions especially geopolitical events in the region have adversely affected exports. However, the economic recovery in most EU member states enabled Turkey to largely compensate its loss in other exports markets as Turkey increased exports to the EU countries by more than 10 percent in euro terms in 2015. This outcome also highlights Turkish exporters’ resiliency in adopting to adverse economic conditions. Of course, probably the most significant development of the last year or so has been the sharp decline in oil prices. Turkey, being an energy importing country, benefited from lower oil prices in many dimensions. The current account deficit fell from $ billion in June 2014 to below $ billion in November 2015 in 12 month cumulative terms. This sharp improvement in the current account balances has also been greatly helped by prudent macro-economic polices including monetary, macro-prudential and fiscal policies.

Again, the cases of Japan and the great depression testify this observation.5 Policy uncertainty over the appropriate policy actions has recently heightened. The policy uncertainty is associated with the question of appropriate mix of demand and supply side policies, the extent and type of suitable monetary policy and the effectiveness of macroprudential policy are the sources of policy uncertainty. Likewise, China has its own acute policy uncertainty problem as mentioned above. Reasons behind heightened policy uncertainty are policy paralyses and unconventional policies such as monetary quantitative easing policy and negative nominal policy rates following financial crises. Elevated policy uncertainty holds back investment and growth6 and causes heightened market volatility. Over the recent globalization period the world has become an increasingly interconnected place. Global trade has increased, broadened and deepened drastically because of trade liberalization, unprecedented capital flows and the international fragmentation of production in global value chains. EMEs have contributed to this development significantly as they have become increasingly more connected to the global production, monetary and financial systems. The unprecedented capital flows have also made global financial markets more interconnected than at any time in history. Advances in communication technology have further heightened and extended the interconnectedness of global financial markets. The increased interconnectedness together with sharply risen external liabilities has reinforced the proposition of the Impossible trinity (also known as the Trilemma) on monetary policy dependence as monetary conditions have become more correlated than before.