Analysis of monetary transmission channels in Turkey

Monetary policy exerts its impact on economic activity through monetary transmission channels. On that account, knowing operation of specific transmission mechanisms is a prerequisite for policy makers to be able to conduct appropriate policies. Within this context, this thesis examines operation of several transmission channels in Turkey for the period 2003 through 2013 to understand underlying mechanisms of monetary propagation process and thereby enhance knowledge about consequences of monetary policies. Estimation results based on Vector Autoregression (VAR) methodology reveal that conventional monetary transmission channels do not operate properly during the low inflation period. Although evidence suggests that interest rate, exchange rate and bank lending channels are operating partially; empirical support for transmission mechanism is generally weak and inconclusive. Keywords: Monetary policy, Transmission mechanisms, VAR model