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“New” monetary policy instruments and exchange rate volatility


  • Cüneyt Akar


  • Serkan Çiçek



Turkish economy has been suffering from rises in financial flows since the last two decades that these flows have raised financial stability challenges across emerging economies including Turkey. Regarding the ability of the central banks to decrease the financial risks including volatile exchange rate, the Central Bank of the Republic of Turkey has designed and implemented a new policy mix. In this study, we investigated the effect of new policy instruments (IRC, RRR and ROM) on the volatilities of US dollar, euro, British pound and basket rate for Turkish economy between January 2, 2002 and December 9, 2014 by using ARMA-GARCH, ARMA-EGARCH and SWARCH models. From the estimation results, we could not reach enough evidence that the IRC and RRR instruments could decrease the volatilities of exchange rates under investigation while the ROM instrument was successful, especially on US dollar and basket rate. We also found strong evidence in favour of asymmetric volatility, indicating that the positive shocks led to greater exchange rate volatility than negative ones. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Cüneyt Akar & Serkan Çiçek, 2016. "“New” monetary policy instruments and exchange rate volatility," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(1), pages 141-165, February.
  • Handle: RePEc:kap:empiri:v:43:y:2016:i:1:p:141-165 DOI: 10.1007/s10663-015-9298-y

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    References listed on IDEAS

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    More about this item


    Reserve option mechanism; Volatility models; SWARCH; Turkish economy; C32; E52; E58;

    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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