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How Effective Are Macroprudential Policy Instruments? Evidence from Turkey

Author

Listed:
  • Mahmut Çelik

    (Department of Economics, Izmir University of Economics, Izmir 35330, Turkey
    Ankara Izmir Branch, Central Bank of the Republic of Turkey, Izmir 35250, Turkey)

  • Ayla Oğuş Binatlı

    (Department of Economics, Izmir University of Economics, Izmir 35330, Turkey)

Abstract

This study provides an empirical analysis of the two macroprudential instruments, namely the reserve option mechanism and the interest rate corridor, employed by the Central Bank of the Republic of Turkey in the aftermath of the global financial crisis. A nine-variable structural vector autoregressive model for Turkey is estimated with Bayesian techniques utilising data from October 2010 to May 2018. A set of timing, zero and sign restrictions are imposed to identify the reserve requirement and the interest rate shocks through the bank lending channel. The results reveal that the new policy frame is efficient in curbing the volatility in the exchange rates and in improving the current account balance. While the reserve requirements seem to be more effective on the current account and partly on the exchange rate, the interest rate fares better in controlling the price level.

Suggested Citation

  • Mahmut Çelik & Ayla Oğuş Binatlı, 2022. "How Effective Are Macroprudential Policy Instruments? Evidence from Turkey," Economies, MDPI, vol. 10(4), pages 1-17, March.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:4:p:76-:d:778687
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    References listed on IDEAS

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