The Effects of Monetary Policy Instruments on Manufacturing Industry Capacity Utilization Rate in Türkiye: 2007-2023 Period

Abstract

This study examines how three monetary policy instruments affect capacity utilization rate (CUR) in Türkiye between 2007 and 2023. We divide the sample into three policy regimes: the global financial crisis (2007-2010), macroprudential (2010-2018), and post-2018 exchange rate-intensive policy regimes. We attribute transmission to the CUR, a high-frequency real activity margin that reflects firms' investment appetite and policy outcomes. The results show that transmission is context-dependent and largely indirect. Across all regimes, the expectations channel, represented by the real sector confidence index, provides the fastest and most persistent effects. The credit/interest-rate channel is powerful only under stress (2007-2010), weak under relative stability and macroprudential control (2010-2018), and contractionary but modest thereafter. After 2018, liquidity (M2) and reserve/exchange-rate dynamics gained salience, indicating that capacity decisions became more sensitive to liquidity availability and FX stabilization policies. Overall, monetary policy alone is unlikely to sustain capacity utilization without reliable communication, exchange rate and reserve management, and macrofinancial underpinnings that stabilize expectations. Policy design should combine transparent guidance with calibrated liquidity and reserve tools and be supported by targeted real sector measures to support sustained improvements in industrial capacity utilization during periods of stress.

Keywords

• Manufacturing Industry
• Manufacturing Industry Capacity Utilization Rate
• Monetary Policy
• VAR
• M2
• Policy Interest Rate

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