THE MONETARY TRANSMISSION MECHANISM: EVIDENCE FROM TURKEY

Year 2018, Volume: 7 Issue: 1, 64 - 75, 30.03.2018

Ahmet Incekara , Akmyrat Amanov

https://doi.org/10.17261/Pressacademia.2018.795

Abstract

Purpose- The CBRT announced in April 2010 that included financial
stability in its target function, and in November 2010 started implementing
modified monetary policy strategy with new monetary policy tools. In this
study, the effectiveness of modified monetary policy was questioned. Thus,
primarily the impacts of intermediate targets on price stability, then the
impacts of policy instruments on intermediate targets have been investigated.

Methodology- The Johansen cointegration test and VECM are used to
show long-run relationships and causality between variables. Then, Granger
causality test is used to examine short-run causality between the variables.

Findings- In the long run, while credit supply and USD exchange rate affect price
level, the average funding rate doesn`t affect the price level. Credit supply,
USD exchange rate and average funding rate affect  TUFE in the short run. In addition, in the
long run, while the required reserve
ratio and interest corridor affect credit supply; average funding rate and
policy interest rate doesn`t affect credit supply. Moreover, in the long run,
policy instruments do not have an impact on the USD exchange rate. Reserve
requirements cause changes in credit supply, and average funding rate causes
changes in USD exchange rate in the short run.

Conclusion- The exchange rate channel and the credit channel is
valid in Turkey. In addition, while required reserves and interest rate
corridor have a predictable impact on the credit supply, no policy instrument
has a predictable effect on the exchange rate. 

 

Keywords

Monetary transmission mechanisms, Johansen cointegration test, monetary policy instrument

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