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Macroeconomic transitions and the transmission mechanism: Evidence from Turkey

Nazif Catik () and Christopher Martin ()

Economic Modelling, 2012, vol. 29, issue 4, 1440-1449

Abstract: This paper investigates changes to the macroeconomic transmission mechanism in Turkey following a major reform of monetary policy in the early 2000s. We use a Threshold VAR (TVAR) framework to test for and then estimate a model with endogenous transitions between regimes. We detect two regimes, with a clear transition between them in 2003–4. The pre-reform regime is characterized by high inflation, passive monetary policy and persistent responses to shocks. The post-reform regime is characterized by low inflation, active and credible monetary policy and markedly less persistent responses to shocks. Using a model that contains sufficient variables to capture diverse transmission mechanisms, working through the real exchange rate, domestic credit and monetary policy, we find evidence of sharp changes in transmission mechanisms. Post-reform, the response of Turkey to macroeconomic shocks has changed to be similar to those in other modern, market-orientated economies.

Keywords: Monetary policy; Transmission mechanism; Regime changes; Turkey (search for similar items in EconPapers)
JEL-codes: C32 E31 E42 E58 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:4:p:1440-1449

DOI: 10.1016/j.econmod.2012.02.015

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