Evaluation of Monetary Policy Shocks in Turkey: A Structural Var Approach

Abstract

This paper empirically investigates the effects of monetary policy shocks on the Turkish economy using a structural VAR model. Monetary policy shocks are identified based on the non-recursive structural identification scheme. Since monetary policy stance is contingent on different funding rates in the wide interest rate corridor for the selected sample period, 2011:M1-2018:M12, this paper employs "weighted average funding cost"to represent the monetary policy stance of the CBRT. The baseline identification scheme is also extended in different ways to check the robustness of the results. The empirical results can be summarized as follows. First, Turkish data are not free from price and exchange rate puzzles. More importantly, qualitative inferences are quite persistent across different identification restrictions. Second, structural impulse-responses reveal that there is a two-way simultaneous interaction between monetary policy and exchange rate. Finally, the presence of money stock in the VAR model is redundant for identifying monetary policy shocks since the VAR models with and without money stock generate almost identical results.