A central bank can slash inflation by raising rates
After inflation peaked at a staggering 85 percent, Turkey abandoned unconventional theories to embrace a classic mathematical rule that stabilized its currency almost overnight.
For years, Turkey followed a heterodox economic theory that suggested lower interest rates would actually decrease inflation. The result was a financial tailspin that saw prices soar by 85 percent in 2022. To save the economy, the central bank performed a dramatic pivot toward the Taylor Rule, a formula that dictates exactly how much to raise rates when prices climb too high.
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