Monetary policy under a multiple‐tool environment

Since the 2008 global financial crisis, central banks have been using a new set of policy tools in addition to conventional tools (such as short‐term interest rates) to conduct monetary policy. This paper employs a methodology that captures 25 of these tools with a limited number of factors for Turkey. Due to a set of factors such as the high volatility of inflation, market‐friendly financial architecture and its size, Turkey provides a unique environment to capture these factors and their effects on economic performance. The three factors identified here can be categorized as interest rate, central bank foreign exchange position and liquidity. The empirical evidence reveals that these three factors affect all the economic‐state variables considered in the paper in different directions and magnitudes.