Operation of asset price channelwithin the monetary transmission mechanism: The Turkish case

The main objective of this study is to examine whether the asset price channel in the operation of monetary transmission mechanism is equivalent to the theory in Turkey. In the second part of the study, the channels of the monetary transmission are examined. In order to analyze the transmission mechanism, interest rate channel, asset price channel, exchange rate channel, credit channel and expectations channel are shortly reviewed. The asset price channel that constitute the main purpose of the study is explained in the third part. The fourth part concerns the historical development of the asset price channel in Turkey and the econometric analysis obtained through the data concerning Turkey. This study was empirically examined the asset price channel by using monthly data for 2002: January - 2016: October period for Turkey. The estimation methodology consists of Johansen cointegration test and Vector Error Correction Model. The variables such as money supply, interest rate, stock prices, investment volume and production volume are used and the relations between these variables are examined. Obtained impulse-response functions reveal the fact that there is an equivalence between the theory and the Turkish case. Keywords: Monetary Transmission Mechanism Channels, Asset Price Channel, Vector Error Correction Model