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An interest-rate-spread-based measure of Turkish monetary policy

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  • M. Hakan Berument
  • Nildag Basak Ceylan
  • Burak Dogan

Abstract

A coherent method to measure the effectiveness of a monetary policy improves the monetary authority's management capacity and renders the possibility of applying sound policies prior to and during a crisis. The trend in employing complicated and ambiguity-bearing unconventional monetary tools in the aftermath of the 2008 crisis has increased the value of such a method. The aim of this article is to introduce a coherent and consistent monetary policy evaluation method for Turkey. Accordingly, we suggest that innovations in the spread between overnight interest rates and Treasury auction interest rates are informative for exchange rate, output, and prices. Empirical evidence for this identification reveals that positive innovation in spread (implying a tight monetary policy measure) decreases output temporarily, permanently decreases prices, and appreciates local currency. This result is also robust to alternative specifications.

Suggested Citation

  • M. Hakan Berument & Nildag Basak Ceylan & Burak Dogan, 2014. "An interest-rate-spread-based measure of Turkish monetary policy," Applied Economics, Taylor & Francis Journals, vol. 46(15), pages 1804-1813, May.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:15:p:1804-1813
    DOI: 10.1080/00036846.2014.884703
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    References listed on IDEAS

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    1. M. Berument & Selahattin Togay & Afsin Sahin, 2011. "Identifying the Liquidity Effects of Monetary Policy Shocks for a Small Open Economy: Turkey," Open Economies Review, Springer, vol. 22(4), pages 649-667, September.
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    1. Lan Nguyen, Thi Mai & Papyrakis, Elissaios & van Bergeijk, Peter A.G., 2021. "Publication bias in the price effects of monetary policy: A meta-regression analysis for emerging and developing economies," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 567-583.
    2. K. Azim Ozdemir, 2015. "Interest Rate Surprises and Transmission Mechanism in Turkey: Evidence from Impulse Response Analysis," Working Papers 1504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Ilhami Gunduz, 2021. "Stock market transmission channel of monetary policy: Empirical evidence from Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6421-6443, October.
    4. Nazif Çatık, Abdurrahman & Huyugüzel Kışla, Gül & Akdeni̇z, Coşkun, 2020. "Time-varying impact of oil prices on sectoral stock returns: Evidence from Turkey," Resources Policy, Elsevier, vol. 69(C).
    5. Thi Mai Lan Nguyen, 2020. "Output Effects of Monetary Policy in Emerging and Developing Countries: Evidence from a Meta-Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(1), pages 68-85, January.

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