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

Leyla BAÅžTAV

Fiscaoeconomia, 2020, issue 2

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, following the initiation of explicit inflation targeting in 2006. 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 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 and/or New Keynesian sense, but rather higher demand leads to higher prices (and vice versa) affecting interest rates in return. Findings do not comply with findings of the previous periods' studies that interest rate channel is effective in Turkey.

Keywords: Monetary Transmission Mechanism; Interest Rate Channel; Granger Causality Test; Toda-Yamamoto Method (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:fis:journl:200204

DOI: 10.25295/fsecon.2020.02.004

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