Unconventional monetary policy tools and Turkey

Central Banks that have been of great importance since the day they were founded have come to the fame in a seperate with the global economic crisis of 2008. Particularly in United States and Europe, the transactions in the rapidly developing and deeping financial markets have been shown to be the main cause of the crisis. The complexity of financial transaction to inability to prevent systematic risks and the fact that the real dimension cannot be established has caused the applied the monetary policies to be ineffective. In this context, the Central Banks of the developed countries, especially FED, have started to move towards unconventional monetary policies instead of conventional monetary policies. Tools not previosuly seen, such as quantitative easing, credit easing and negative interest, have begun to be implemented. Yet, these tools have triggered some problems in terms of developing countries. In this process, increased capital flows and volatility to developing countries have led to changes in monetary policy strategies and tools in developing countries. In this context, Central Banks of Turkish Republic has begun to practice a new monetary policy strategy including price stability which is the primary target, as well as financial stability, in order to limit the effect of the resulting macro financial risks since the later 2010. Central Bank of Turkish Repulic moving with the principle of multi-purpoese multi-goals aims at achieving the given objectives by deriving new tools such as interest rate coridor and reserve option mechanism in itw own structure. In particular, the application of the interest rate coridor to provide timely response to financial volatility will be dealt with time series method by forecasting relationship between market rates of Central Banks of Turkish Republic and actual rates on which banksa are actually exposed. Within this context, the probable effects of the upper and lower interest corridor on credit (individual-commercial) and deposit rates will be examined. According to findings, it is observed that the lower and upper band of interest corridor has an effect on deposit interest and plays a role in deposit pricing.