Quantifying monetary policy communication and measuring its impact on the yield curve: The case of Turkey, 2011-2018

Current dissertation investigates the impact of the Turkey's monetary policy on the TL denominated sovereign yield curve, by quantifying the monetary policy communication and calculating the monetary policy surprise. For this purpose, a financial market-based methodology is followed and tick-by-tick data are employed to measure monetary policy surprise. Quantifying communication through two different methodologies and then measuring its impact on the yield curve, the study shows that a single factor approach focusing only on the policy rate is not enough to capture the effects of the monetary policy in Turkey. Response of the yield curve evidences the importance of communication to prolong the impact of monetary policy towards the long end of the yield curve. Accordingly, the Central Bank of the Republic of Turkey stands sufficiently credible to pass its messages to the market players albeit at a diminishing strength as the maturity extends. This finding points at the importance of avoiding any stance that might risk the current strength of communication. Meanwhile, monetary policy communication falls short of shaping the 5 year – 10 year forward curve, evidencing the need to invest further in the credibility of the communication.