This paper presents an analysis of the relations between economic stability and growth in reference to a particular theoretical model. It may be argued that in a highly inflationary environment, since the prices of physical assets are expected to rise pari-pasu with the WPI firms would choose to shift from financial to physical capital in order to protect the real value of their net worth. Under such circumstances, same theoretical models claim that there would be a downward pressure on real interest rates. However, this does not jibe with the experience of Turkey, where capital seems to have shifted not to the real seetar but to financial instruments yielding substantial returns: This has, indeed manifested itself in high ratios of "financial earnings "to total earnings offirms since 1994. Among the major dynamics that make this possible and that sustain high nominal interest rates and so create this picture, are structural problems of the economy and of public finance that result in a high and continuously increasing public borrowing requirement and alsa the high risk premium demanded because of uncertainties regarding systematic risks.
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