Measuring the Monetary Policy Stance in Turkey: Effects of Traditional and Non-Traditional Monetary Policy Instruments

Metin Tetik (metin.tetik@usak.edu.tr) and Görkem Kara (grk_kr_86@hotmail.com)
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Görkem Kara: Department of Econometrics, Uşak University, Turkey.

Journal for Economic Forecasting, 2021, issue 3, 97-119

Abstract: In this study, we aimed to predict the monetary policy stance by creating a new monetary policy stance index for Turkey between 2006 and 2019. We analyzed the connection between the monetary policy stance index we created and the economic situation separately for the entire period (2006m01-2019m10) and for the periods when the CBRT used traditional and non-traditional policy instruments (2006m01-2010m09 and 2010m10- 2019m10). The findings show that the CBRT preferred a more cautious but expansionary policy stance in the traditional period as compared to the non-traditional period. In addition, we found that the CBRT continued to exhibit an expansionary stance in the unconventional period. The monetary policy reaction function estimated using the index shows us that while you determine the CBRT's policy stance according to the inflation gap and exchange rate gap in the traditional period, you only determine it according to the exchange rate gap in the non-traditional period. This finding shows us that the CBRT's policy stance strategy has changed as regards achieving price stability, which is its main objective. At the same time, it offers us some clues about the loss of credibility of the CBRT in the non-traditional period.

Keywords: central bank; monetary policy stance; monetary policy instruments; monetary reaction function; ordered Probit mode (search for similar items in EconPapers)
JEL-codes: C35 E52 E61 (search for similar items in EconPapers)
Date: 2021
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