Given the pro-cyclicality of the financial cycles on the business cycles, it is of importance to analyze whether the use of the traditional monetary policy instruments along with the prudential responsibilities result in the prevention of unsustainable financial cycles e.g., housing cycles. Still, there is not enough empirical evidence regarding the exploration of the nexus between housing variables and monetarymacroprudential policy rules. Observing the developments in housing market in Turkey, that is, the simultaneous increase in both house prices and residential investments in the last decade, the nexus between housing market and macro economy deserves a further investigation. Accordingly, a new Keynesian DSGE model is estimated with Turkish data for a period 2010-2014 using Bayesian techniques in this thesis. Results reveal that arguments for a monetary policy regime that produces aggregate price stability will, as a byproduct, tend to promote stability of housing markets don't fully hold in the estimation. It can also be stated that the monetary policy rules with existing prudential policy instruments may not result in prevention of further housing "bubbles". The Variance-shock decomposition analyses show that demand and supply shocks dramatically determine the cycles of the real housing prices and residential investment whereas the monetary policy shocks and shocks in central bank's inflation target do not explain the volatility of the housing variables. iii GENEL BİLGİLER

In consideration of channels through which monetary policy affects economic activity, the monetary aggregates have been mostly ignored by the monetary authorities instead of which shortrun interest rates have been given a priori role. These monetary aggregates are largely argued to fail in measuring the effectiveness of different monetary policy regimes in forecasting the macroeconomic fundamentals. Grounded on the "Barnett critique", the formation of traditional simple-sum monetary aggregates assuming for perfect substitution among the components of the money supply is blamed for such a failure of money in explaining the real activity. Given increasing varieties of financial assets which have completely different "moneyness", it is important to provide an alternative measure of the money supply. Hereby, the Divisia monetary aggregates which give different weights to different assets have arisen as an alternative approach. In this study, a Divisia index is constructed to test its predictive power on quantities and prices compared to its simple sum counterpart. Accordingly, a Divisia index is built-up for Turkish economy for the period 2006-2016 to see whether the utilization of the Divisia monetary aggregates in the conduct of monetary policy makes any difference compared to that of traditional simple sum money supply. Under different specifications, though the relative power of the Divisia aggregates in predicting quantity and price variables is found, still, it can be argued that theoretically well-rounded formation of the Divisia index is not that much empirically justified for the case of Turkey.

In this study, it is assessed the main determinants of sovereign CDS spreads in Turkey from January 2006 to December 2015. Before delving into the nonlinear Markov regime-switching model estimation, a conventional one-state linear model is estimated answering to what extent the sovereign credit risk is affected in between global and country-specific market variables and by credit ratings announcement changes. In broad strokes, the regime-switching analysis reveals that among domestic variables, it is the foreign exchange rate that affects the sovereign credit risk more in more volatile periods and among global variables, the indicators standing for global volatility risk premiums and international liquidity primarily influence the changes in the sovereign CDS spread in turbulent regimes whereas proxies for global risk free rate are significant more in tranquil regimes.

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This study aims to perform a comparative analysis of the effectiveness of pass-through of policy rates in Turkey. We explore monetary transmission with different choices of instruments, i.e., the Turkish Lira Reference Interest Rate (TRLIBOR rate), BIST overnight rate, and Divisia money, and under different policy regimes, i.e., inflation targeting and new monetary policy regimes. We estimate a two-stage FAVAR model to use all of the available information set and obtain direct responses of disaggregated/sectorial series for the period 2005:12-2018:4. We extend the model setting proposed by Bernanke, Boivin, and Eliasz (2005) by considering the multiple-policy environment in Turkey. Our findings promote arguments that regard policy rate as a poor indicator of the policy stance in Turkey.