Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach
Metin Tetik () and
Yıldırım Mustafa Ozan ()
Additional contact information
Yıldırım Mustafa Ozan: Department of Economics, Pamukkale University, Kinikli Campus, Camlaralti, 20160, Pamukkale, Denizli, Turkey
Economics and Business Review, 2021, vol. 7, issue 3, 83-102
This study investigates the interaction between fiscal and monetary policies and how crises affect the coordination between policymakers in Turkey. This study’s novelty is that a nonlinear Taylor rule indicating monetary policy response function is estimated based on the Threshold Generalized Method of Moments (Threshold GMM) methodology over the period January 2006—March 2020. The empirical findings reveal that when fiscal policy has an expansionary stage, especially in crises times, the policy interest rate does not react significantly to the inflation gap, output gap and real effective exchange rate gap in expansionary periods. On the contrary the policy interest rate gives statistically important responses to these variables during contractionary fiscal policy periods. Thus, the effectiveness of the Taylor rule appears in a period of contractionary fiscal policy. This situation gives rise to the significant policy implication that the monetary policymaker’s success in controlling inflation increases with the contractionary fiscal policy. Finally, it has been observed that effective coordination between monetary and fiscal policies did not occur during crisis periods, but compatible coordination was achieved in other periods.
Keywords: economic crises; fiscal policy; monetary policy; nonlinear econometric model; policy coordination; Threshold GMM (search for similar items in EconPapers)
JEL-codes: C13 E51 E52 E61 E63 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecobur:v:7:y:2021:i:3:p:83-102:n:2
Access Statistics for this article
Economics and Business Review is currently edited by Tadeusz Kowalski
More articles in Economics and Business Review from Sciendo
Bibliographic data for series maintained by Peter Golla ().