Monetary Polıcy Interest Rate Channel in Turkey: Toda-Yamamoto Method (2011-2018)

Abstract

This study analyzes the channel through which monetary policy has affected real economic activity in Turkey during 2011Q1-2018Q2. There is a novel monetary policy stance of the Turkish Central Bank (TCMB) from 2011 on, after initiation of explicit inflation targeting from 2006 on. Within the framework financial stability is added to previous target of price stability and diversified interest rates and liquidity measures have been introduced as new monetary policy tools along with classical short-term interest rate. Existence of interest channel has been tested by two causality methods, namely: Granger and Toda-Yamamoto. Results imply that interest channel is not operative in Turkey in the traditional Keynesian sense, bu rather higher demand leads to higher prices (and vice versa) affecting interest rates in return. Findings do not comply with findings of the previous studies that interest rate channel is effective in Turkey.

Keywords

• monetary transmission,interest rate channel,toda yamamoto method,granger causality

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