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Interaction of Monetary and Fiscal Policies in Turkey

Author

Listed:
  • Tayyar Buyukbasaran
  • Cem Cebi
  • Erdal Yilmaz

Abstract

This paper aims to investigate the interaction between monetary and fiscal policies in Turkey. For this purpose, a Bayesian Structural Vector Auto-Regression (SVAR) model with sign and zero restrictions is used. We particularly focus on how the fiscal and monetary policy variables respond to various macroeconomic shocks and whether the type of shocks matters. Our results confirm the importance of nature of shocks in terms of interaction between monetary and fiscal policies with the finding that both policy shocks are complementary in response to demand and supply shocks while they are substitute in response to shocks caused by the each other. Our main findings are robust to alternative variable definitions and identifying restrictions.

Suggested Citation

  • Tayyar Buyukbasaran & Cem Cebi & Erdal Yilmaz, 2019. "Interaction of Monetary and Fiscal Policies in Turkey," Working Papers 1935, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1935
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2019/19-35
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    Cited by:

    1. Tetik Metin & Yıldırım Mustafa Ozan, 2021. "Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach," Economics and Business Review, Sciendo, vol. 7(3), pages 83-102, September.
    2. Büyükbaşaran, Tayyar & Karasoy-Can, Gökçe & Küçük, Hande, 2022. "Macroeconomic effects of bank lending in an emerging economy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 115(C).
    3. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez, 2022. "The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Risk Channel," Borradores de Economia 1196, Banco de la Republica de Colombia.
    4. Lozano-Espitia, Ignacio & Arias-Rodríguez, Fernando, 2022. "The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Channel," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(4).

    More about this item

    Keywords

    Monetary policy; Fiscal policy; Structural VAR; SVAR; Bayesian VAR; Sign and zero restrictions;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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