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Measuring the Impact of Monetary Policy on Asset Prices in Turkey (Turkiye�de Para Politikasinin Finansal Varlik Fiyatlari Uzerine Etkisi)

Author

Listed:
  • Murat Duran
  • Gulserim Ozcan
  • Pinar Ozlu
  • Deren Unalmis

Abstract

The transmission of policy decisions to financial markets is an integral part of the monetary transmission mechanism. However, one of the major problems in estimating the effect of monetary policy on asset prices is the simultaneous response of policy actions and the asset prices to each other. Rigobon and Sack (2004) suggest a heterokedasticity-based generalized method of moments (GMM) technique to overcome this problem. For emerging markets, there are very few studies using this method. This study applies the heteroskedasticity-based technique to estimate the impact of monetary policy on the Turkish bond, currency and stock markets. This technique also addresses the omitted variables problem. The empirical results verify the findings obtained by event study methods in earlier studies. Firstly, the impact of monetary policy on market interest rates is found to be positive, which diminishes with maturity for maturities longer than 9 months. Secondly, the results suggest that a rise in the policy rate leads to a moderate appreciation of the domestic currency, where the TL/EUR rate is affected more significantly compared to the TL/US dollar rate. Finally, the results show that an increase in the policy rate leads to a decline in stock prices, and monetary policy has the greatest impact on the share prices of the financial sector firms.

Suggested Citation

  • Murat Duran & Gulserim Ozcan & Pinar Ozlu & Deren Unalmis, 2010. "Measuring the Impact of Monetary Policy on Asset Prices in Turkey (Turkiye�de Para Politikasinin Finansal Varlik Fiyatlari Uzerine Etkisi)," Working Papers 1017, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1017
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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