Effectiveness of monetary policy: evidence from Turkey

Sureyya Avci () and Mustafa Yücel

Eurasian Economic Review, 2017, vol. 7, issue 2, No 2, 179-213

Abstract: Abstract An effective monetary policy framework is often viewed as a pre-condition for well-functioning financial markets. Yet measuring monetary policy effectiveness is not straightforward; it requires empirical work to understand the impact of financial infrastructure, competitiveness of financial markets, and current economic conditions. In particular, monetary policy effectiveness depends on the extent to which the chosen interest rate affects all other financial prices—including the entire term structure of interest rates, credit rates, exchange rates, and asset prices. This paper examines the effectiveness of monetary policy in Turkey by focusing on interest rate pass-through outcomes by way of an interacted vector autoregressive (IVAR) approach. The results suggest that policy-led rate changes are fully transmitted to deposit and credit rates within eight months. Competition in the banking sector (as well as that sector’s liquidity and profitability), dollarization, exchange rate flexibility, inflation, and term structure all have a positive effect on interest rate pass-through; whereas regulatory quality, GDP growth, monetary growth, industrial growth, and capital inflows have a negative effect. Using various tests, we find that the effect of financial development and macroeconomic variables on interest rate pass-through is neither robust nor time-invariant.

Keywords: Interest rate pass-through; Deposit and credit channels; Policy and market rates; Banking sector; Interacted vector autoregressive methodology (search for similar items in EconPapers)
JEL-codes: E43 E44 E58 F41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s40822-017-0068-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Effectiveness of Monetary Policy: Evidence from Turkey (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurase:v:7:y:2017:i:2:d:10.1007_s40822-017-0068-y

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40822

DOI: 10.1007/s40822-017-0068-y

Access Statistics for this article

Eurasian Economic Review is currently edited by Dorothea Schäfer

More articles in Eurasian Economic Review from Springer, Eurasia Business and Economics Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().