International business cycle spillover effects and monetary policy asymmetry in Turkey

The general view of the global economic system from the last century's 4th quarter to the present day is changing rapidly due to the developing technology. Also in parallel with this change, the boundaries between the countries have been removed. In addition to this, globalization and international dependency have increased day by day. All these developments and especially the results of the 2009 global financial crisis have created a strong debate over the arguments that countries' economic fluctuations are acting together. On the other hand central banks aim to provide economic stability through implementing counter-cyclical monetary policies. In the first phase of this study the international spillover of economic fluctuations is investigated by Diebold ve Yılmaz (2009) Spillover Index method and external shocks to Turkey has been estimated. In the second stage of the study the state asymmetry of the monetary policy, which is described as the effects of implemented monetary policies differing according to prevailing economic regimes namely expansion and contraction, has been tested by Hamilton (1989) Markov Regime Switching method, which gives a different perspective to the economic literature. In this study, it is aimed to answer the question whether if economic fluctuations of the foreign economies can be used as a leading indicator for Turkish Economy and develop a monetary policy in line with the characteristics of the economic fluctuations that may occur in the following periods or not. According to the findings obtained by the Spillover Index Method, 48% of economic shocks affecting the Turkish Economy caused by international spillovers of economic fluctuations. More specifically the economic fluctuations that occurred in Turkey are originated 12,5% from South Korea, 8.4% from US, 6.4% from Japan, 4.5% from Greece and 3.2% from the Spanish Economy's external shocks. According to these results, the economic conditions of these countries are leading indicators for the Turkish Economy. Markov Regime Switching model findings show that Turkish Economy grows 1.62% on an average in the expansion, shrinks 0.95% on an average in the contraction and an increase in the exchange rate slows the economic growth in Turkey. Finally obtained econometric evidence shows that The Central Bank of Turkey can bring real effect in expansion regime but not create real impact in the fight against recession.