Stock market transmission channel of monetary policy: Empirical evidence from Turkey

Ilhami Gunduz

International Journal of Finance & Economics, 2021, vol. 26, issue 4, 6421-6443

Abstract: Monetary policy is one of the instruments that policymakers use to provide both sustainable economic growth and price stability. In this study, I analyse the stock market transmission channel of the monetary policy of the Turkish economy not only at the aggregate but also at the sectoral level in a structural vector autoregression (SVAR) framework. I adopt alternative variables as a policy instrument. When the spread is used as a policy instrument, I find that contractionary monetary policy has a significant negative effect on both output and the price level, and it appreciates the Turkish Lira. Besides, the tight monetary policy reduces both aggregate and sectoral market returns. Hence, I observe that there are effective interest rate, exchange rate, and asset price channels in the Turkish economy.

Date: 2021
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