The Importance of External Shocks and Global Monetary Conditions for A Small-Open Economy

Gulnihal Tuzun

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: The purpose of this study is to assess how do the domestic and foreign shocks affect the fundamental macroeconomic variables of a small-open economy, and in particular Turkey. The domestic supply, demand and monetary policy shocks as well as their global counterparts are identified by employing a Bayesian structural VAR model with sign and zero restrictions. After a US monetary tightening shock, the results demonstrate an appreciation of US Dollar against Turkish lira, a rise in the consumer price level in the Turkish economy, a contractionary monetary policy shock accompanied by a fall in the real output level. This reaction is a strong evidence of the existence of a global interest rate contagion present in the international macroeconomics literature.

Keywords: Bayesian VAR; Sign and zero restrictions; Shock identification; Monetary policy (search for similar items in EconPapers)
JEL-codes: C11 C32 E52 F41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2109

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