IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Monetary Transmission Mechanism In An Open Economy Framework: The Case Of Turkey

Listed author(s):
  • Ozgur ASLAN

    ()

    (Istanbul University)

  • H. Levent KORAP

    ()

    (Marmara University)

Monetary transmission mechanism (MTM) is an illuminating policy tool in appreciating the monetary policy implementations by policy makers upon various nominal and real factors of interest in the eyes of economic agents. Especially in an open economy such as Turkish economy highly exposed to the effects of capital flows on domestic business cycles with a liberalised capital account, control over policy aggregates may be difficult since many other economic policy implementations would be of great consequence on some other policy targets on macroeconomic income generation process and in providing price stability and external balance. In this respect, in our paper we aim to estimate the MTM for the Turkish economy. Our ex-post estimates for the period 1992-2004 using contemporaneous vector autoregression models such as impulse response analysis indicate that weakly exogeneous capital inflows appreciate the real effective exchange rate, and in turn lower the real interest rates and domestic inflation while increasing both the real output growth and also the stock exchange index considering an asset-price channel for the latter and vice versa. We find some significant effects of the courses of capital flows and real effective exchange rate on monetary policy variable in the transmission mechanism, and such a case may impose an endogeneous characteristic on the policy variable given also that both domestic real interest structure is highly sensible to the monetary policy and that monetary policy is subject to the structural breaks in the sense of so-called Lucas’ critique of contemporaneous economics.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://eidergisi.istanbul.edu.tr/sayi5/iueis5m3.pdf
Download Restriction: no

Article provided by Department of Econometrics, Faculty of Economics, Istanbul University in its journal Istanbul University Econometrics and Statistics e-Journal.

Volume (Year): 5 (2007)
Issue (Month): 1 (May)
Pages: 41-66

as
in new window

Handle: RePEc:ist:ancoec:v:5:y:2007:i:1:p:41-66
Contact details of provider: Web page: http://eidergisi.istanbul.edu.tr

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. John H. Cochrane, 1999. "A Frictionless View of U.S. Inflation," NBER Chapters,in: NBER Macroeconomics Annual 1998, volume 13, pages 323-421 National Bureau of Economic Research, Inc.
  2. Devrim Yavuz & Arzu Cetinkaya, 2002. "Calculation Of Output-Inflation Sacrifice Ratio : The Case Of Turkey," Working Papers 0211, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
  4. O. Cevdet Akcay & C. Emre Alper & Suleyman Ozmucur, 2001. "Budget Deficit, Inflation and Debt Sustainability: Evidence from Turkey(1970-2000)," Working Papers 2001/12, Bogazici University, Department of Economics.
  5. Cem Saatcioglu & Levent Korap, 2006. "Determinants of Turkish Inflation," Working Papers 2006/7, Turkish Economic Association.
  6. Yilmaz, K. & Altug, S., 1998. "Asset Returns, Inflation and Real Activity: The Case of Mexico and Turkey," Papers 1998/03, Koc University.
  7. Ayca Tekin-Koru & Erdal Ozmen, 2003. "Budget deficits, money growth and inflation: the Turkish evidence," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 591-596.
  8. Domac, Ilker & Mendoza, Alfonso, 2004. "Is there room for foreign exchange interventions under an inflation targeting framework ? Evidence from Mexico and Turkey," Policy Research Working Paper Series 3288, The World Bank.
  9. Levent, Korap, 2006. "An essay upon the business cycle facts: the Turkish case," MPRA Paper 21717, University Library of Munich, Germany.
  10. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
  11. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Review, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  12. Agenor, Pierre-Richard & McDermott, C. John & Ucer, Murat, 1997. "Fiscal imbalances, capital inflows, and the real exchange rate: The case of Turkey," European Economic Review, Elsevier, vol. 41(3-5), pages 819-825, April.
  13. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  14. Hakan Berument & N. Nergiz Dincer, 2004. "Do Capital Flows Improve Macroeconomic Performance in Emerging Markets? : The Turkish Experience," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 40(4), pages 20-32, July.
  15. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  16. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
  17. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  18. Ercan UYGUR, 2001. "Enflasyon, Para ve Mali Baskı: İktisat Politikasında Geri Kalmışlık," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 16(189), pages 7-23.
  19. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  20. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
  21. Kamas, Linda, 1985. "External disturbances and the independence of monetary policy under the crawling peg in Colombia," Journal of International Economics, Elsevier, vol. 19(3-4), pages 313-327, November.
  22. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
  23. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  24. Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  25. Stephen G. Cecchetti, 1995. "Distinguishing theories of the monetary transmission mechanism," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 83-97.
  26. Hakan Berument & Hakan Taşçi, 2004. "Monetary policy rules in practice: evidence from Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 33-38.
  27. Kibritçioğlu, Aykut & Rittenberg, Libby & Selçuk, Faruk & Akçay, O. Cevdet & Alper, C. Emre & Berument, M. Hakan & Dibooğlu, Selahattin & Erlat, Haluk & Ertuğrul, Ahmet & Malatyalı, N. Kamuran & Nas, , 2002. "Inflation and Disinflation in Turkey," EconStor Books, ZBW - German National Library of Economics, number 110203.
  28. C. Emre Alper, Ismail Saglam, 2001. "The Transmission of a Sudden Capital Outflow: Evidence from Turkey," Eastern European Economics, Taylor & Francis Journals, vol. 39(2), pages 29-48, March.
  29. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
  30. Carlo A. Favero & Francesco Giavazzi, 2004. "Inflation Targeting and Debt: Lessons from Brazil," NBER Working Papers 10390, National Bureau of Economic Research, Inc.
  31. Zelal Aktas & Neslihan Kaya & Umit Ozlale, 2005. "The Price Puzzle in Emerging Markets : Evidence from the Turkish Economy Using Model Based Risk Premium Derived from Domestic Fundamentals," Working Papers 0502, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  32. Kamas, Linda, 1995. "Monetary policy and inflation under the crawling peg: Some evidence from VARs for Colombia," Journal of Development Economics, Elsevier, vol. 46(1), pages 145-161, February.
  33. Ramon Moreno, 1996. "Intervention, sterilization, and monetary control in Korea and Taiwan," Economic Review, Federal Reserve Bank of San Francisco, pages 23-33.
  34. Savvides, Andreas, 1998. "Inflation and monetary policy in selected West and Central African countries," World Development, Elsevier, vol. 26(5), pages 809-827, May.
  35. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
  36. Gokhan Yilmaz, 2002. "Open Market Operations In Turkey," Working Papers 0209, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  37. Celasun, Oya & Denizer, Cevdet & Dong He, 1999. "Capital flows, macroeconomic management, and the financial system - Turkey, 1989-97," Policy Research Working Paper Series 2141, The World Bank.
  38. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
  39. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis," Working Papers 0506, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  40. Runchana Pongsaparn, 2002. "Inflation Dynamics and Reaction Function in High-inflation Environment : An Implication for Turkey," Working Papers 0210, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  41. Gulbin Sahinbeyoglu, 2001. "Monetary Transmission Mechanism : A View From A High Inflationary Environment," Discussion Papers 0101, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  42. Kursat Kunter & Norbert Janssen, 2002. "Credibility Of Monetary Regimes : Is Inflation Targeting Different?," Discussion Papers 0201, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  43. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  44. Fry, Maxwell J, 1998. "Assessing Central Bank Independence in Developing Countries: Do Actions Speak Louder Than Words?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 512-529, July.
  45. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
  46. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
  47. Cihan Yalcin & Gulbin Sahinbeyoglu, 2000. "The Term Structure of Interest Rates : Does It Tell About Future Inflation," Discussion Papers 0002, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  48. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "Causes and Effectiveness of Foreign Exchange Interventions for the Turkish Economy," Working Papers 0505, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ist:ancoec:v:5:y:2007:i:1:p:41-66. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kutluk Kagan Sumer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.