Effectiveness of monetary transmission mechanism: The case of Turkey

The monetary transmission mechanism shows through which channels and to what extent the monetary policy implemented by the central bank affects the production level and inflation. Fundamentally, the monetary transmission mechanism, which operates through the traditional interest rate channel and includes exchange rate, credit, expectations and asset prices over time, is a rather difficult and complex structure to understand. However, in order for central banks to implement an effective monetary policy and to determine the appropriate tool set within the framework of this policy, it is important to understand the complex structure in question in the best way possible. In this study, the efficiency of the channels of interest rate, credit, exchange rate and asset prices, which are among the channels of monetary transmission mechanism, in the period of 2007:10-2022:06 in Turkey examined by using Diebold Yılmaz (2012) Spillover Analysis method which is based on estimation error variance decomposition. The results obtained from the empirical analysis show that the relative effect of the credit channel on production and the exchange rate channel on inflation is higher. Keywords: Monetary Transmission Mechanism, Monetary Policy, Diebold Yilmaz (2012) Spillover Analysis.