The Effects of Monetary Policy Shocks on Macroeconomic Variables: A Case for Turkish Economy

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Abdur Rehman
Zelha Altinkaya

Abstract

The study analyzes the responses of macroeconomic variables to both monetary policy and external shocks in the small open economy. This study follows Structural Vector Autoregressive model (SVAR) with block exogeneity approach to identify these shocks in Turkey. Some previous studies which followed VAR approach to investigate the monetary policy shocks have produced price and exchange rate puzzles while using SVAR approach, this research does not produce such puzzles. The study finds that currency appreciates, and prices diminish in response totight monetary policy. The research discloses that prices are sticky in the short-run, which is in accordance with theoretical expectations. The output increases but it is not critical. This finding is not in accordance with theoretical expectations. The research reveals that trade balance shows somehow an Inverse J-curve trend in response to tight monetary policy. The study also finds that there is some deviation from Uncovered Interest party (UIP). Further, the study displays that external output shocks are not critical for domestic economic fluctuations in Turkey except some fluctuations in prices. The study reveals that transmission mechanism works better through the exchange rate.

 

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How to Cite
Rehman, A., & Altinkaya, Z. (2017). The Effects of Monetary Policy Shocks on Macroeconomic Variables: A Case for Turkish Economy. The International Journal of Business & Management, 5(10). Retrieved from https://internationaljournalcorner.com/index.php/theijbm/article/view/125464