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Revisiting Monetary Policy Effectiveness in Turkey Using a FAVAR Model

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  • Umurcan Polat

Abstract

This study aims to perform a comparative analysis of the effectiveness of pass-through of policy rates in Turkey. We explore monetary transmission with different choices of instruments, i.e., the Turkish Lira Reference Interest Rate (TRLIBOR rate), BIST overnight rate, and Divisia money, and under different policy regimes, i.e., inflation targeting and new monetary policy regimes. We estimate a two-stage FAVAR model to use all of the available information set and obtain direct responses of disaggregated/sectorial series for the period 2005:12–2018:4. We extend the model setting proposed by Bernanke, Boivin, and Eliasz (2005) by considering the multiple-policy environment in Turkey. Our findings promote arguments that regard policy rate as a poor indicator of the policy stance in Turkey. Keywords: Monetary transmission, FAVAR model, Policy rate, Divisia index, Turkey. JEL: E51, E52, E58

Suggested Citation

  • Umurcan Polat, 0. "Revisiting Monetary Policy Effectiveness in Turkey Using a FAVAR Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 0(0), pages 1-38.
    • Handle: RePEc:voj:journl:v:0:y:0:i:0:p:1-38:id:1396
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    More about this item

    Keywords

    Monetary transmission; FAVAR model; Policy rate; Divisia index; Turkey;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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