The efficiency of monetary policy in different phases of the business cycle: An econometric analysis on Turkish economy

Business cycles are the periods which include the expansionary and the recessionary regimes in which the GDP fluctuates around its long run trend. The efficienct of monetary policy, on the other hand, is taken as timely and correct applications of the monetary tools by the monetary policy. If a general overlook regarding the efficiency of the monetary policy is to be presented, efficient use of the monetary policy tools at the right time is a strong indicator of the success of the policy. In this study, the simultaneous evaluation of the business cycles and the efficiency of monetary policy differentiates the study from the majority of the studies in the literature. In accordance with the targets of the study, Classical, Neo-Classical, Monetarist, Keynesian, New Keynesian and Real Business Cycle schools of thoughts are evaluated in terms of their approaches regarding the monetary policy and the tools of policy and policy rule suggestions. In the application section where we aimed at investigating and measuring the responses of the Central Bank in different phases of the business cycle we followed certain stages. At the first stage, the expansionary and recessionary regimes in Turkey are estimated with a Markov regime switching model; at the second stage, the responses of the Central Bank to the developments in the inflation rates and in the growth rates are analyzed in terms of the Taylor rules. The findings of the study suggest that though the responses of the monetary policy in Turkey differenciate in different regimes, the overall look reveal that in both regimes, the monetary policy maintains its efficiency.