Analyzing of the effectiveness of the conventional and unconventional monetary policy strategies

The process of economy management with the help of conventional monetary policy instruments in order to achieve the main goals of central banks, is called transmission mechanisms. The effectiveness of transmission channels is open to risks such as exogenous shocks. Hence, debates on the efficiency of conventional monetary policy instruments which will be used in case of shocks encountered in open economies have been increasing recently. Along with the global financial crisis experienced in the last quarter of 2008, it seems that central banks' traditional instruments for managing the economy are inadequate. After 2008, Along with the financial crisis worldwide, central banks have moved beyond conventional approaches to design alternative policies. The extraordinary global conjuncture has strengthened the trust in the effectiveness of unconventional monetary policy instruments and this lead central banks to use unconventional monetary policy tools. While the effectiveness of monetary policy strategies of the developed countries has been widely discussed in the literature, developing countries has not been studied enough. The main contribution of our work in this context is to fill this gap in the literature and to present policy proposals in particular for developing countries. This study consists of two parts: theory and application. In the first chapter, the mechanism of monetary transmission is defined, detailed information about transmission channels is given, and conventional and unconventional approaches to monetary transmission mechanism are examined. In the second part; the purpose of the study, the scope, the data set and variables used, the methodology used in the research, and the empirical analysis results are given together with the literature summary of the topic. The effectiveness of traditional and unconventional monetary policy strategies for developing countries was explored by panel VAR analysis. For the econometric methods used, the analysis process was started with panel unit root tests and impulse - response analyzes, Granger Causality tests, and variance decomposition analyzes were applied to reveal the interaction between the variables used in the panel VAR models. Within this study, monthly data for the 2008: 1-2017:5 period of a group of developing countries consisting of Romania, Poland, Hungary, and Turkey is used. These countries have used the unconventional monetary policy strategy in the global post-crisis period. Findings of econometric analyzes have showed that in the post-global crisis period, traditional policy implementations can not create meaningful and lasting effects on GDP in developing countries. It has been detected that unconventional monetary policy doesn't have a statistically significant effect on inflation, while its most severe and permanent effect is observed on the real effective exchange rate. The fact that the effect on the real effective exchange rate is reflected through industrial production also provides evidence revealing that the international transmission channel is partly active and the unconventional monetary policy strategies are more effective. Keywords: Monetary Transmission Mechanism, International Transmission Mechanism, Unconventional Monetary Policies, Developing Countries, Second Generation Panel Unit Root Tests, Panel Data Analysis.