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Measuring the Monetary Policy Stance in Turkey: Effects of Traditional and Non-Traditional Monetary Policy Instruments

Author

Listed:
  • Metin TETİK

    (School of Applied Science, Uşak University, Turkey.)

  • Görkem KARA

    (Department of Econometrics, Uşak University, Turkey.)

Abstract

In this study, we aimed to predict the monetary policy stance by creating a new monetary policy stance index for Turkey between 2006 and 2019. We analyzed the connection between the monetary policy stance index we created and the economic situation separately for the entire period (2006m01-2019m10) and for the periods when the CBRT used traditional and non-traditional policy instruments (2006m01-2010m09 and 2010m10- 2019m10). The findings show that the CBRT preferred a more cautious but expansionary policy stance in the traditional period as compared to the non-traditional period. In addition, we found that the CBRT continued to exhibit an expansionary stance in the unconventional period. The monetary policy reaction function estimated using the index shows us that while you determine the CBRT's policy stance according to the inflation gap and exchange rate gap in the traditional period, you only determine it according to the exchange rate gap in the non-traditional period. This finding shows us that the CBRT's policy stance strategy has changed as regards achieving price stability, which is its main objective. At the same time, it offers us some clues about the loss of credibility of the CBRT in the non-traditional period.

Suggested Citation

  • Metin TETİK & Görkem KARA, 2021. "Measuring the Monetary Policy Stance in Turkey: Effects of Traditional and Non-Traditional Monetary Policy Instruments," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 97-119, June.
    • Handle: RePEc:rjr:romjef:v::y:2021:i:3:p:97-119
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    More about this item

    Keywords

    central bank; monetary policy stance; monetary policy instruments; monetary reaction function; ordered Probit mode;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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