Measuring the monetary policy stance in turkey: Effects of traditional and non-traditional monetary policy instruments1


TETİK M., Kara G.

Romanian Journal of Economic Forecasting, vol.24, no.3, pp.97-119, 2021 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 24 Issue: 3
  • Publication Date: 2021
  • Journal Name: Romanian Journal of Economic Forecasting
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit
  • Page Numbers: pp.97-119
  • Keywords: Central bank, Monetary policy instruments, Monetary policy stance, Monetary reaction function, Ordered Probit model
  • Uşak University Affiliated: Yes

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.