Macroeconomic shocks and optimal monetary policy analysis: A new Keynesian dynamic stochastic general equilibrium estimation for Türkiye

This study examines the macroeconomic effects of monetary policy implemented in Turkey during the 2001-2024 period using a DSGE model. The research follows a two-stage hybrid methodology: first, model parameters were obtained through econometric estimation methods, then these parameters were used in a Bayesian DSGE model.The findings reveal that the CBRT's policy implementations under the inflation targeting regime exhibit unique characteristics. The near-zero interest rate smoothing parameter (0.014) indicates that the central bank does not consider past values in its interest rate decisions. The response to the output gap (2.504), which is well above standard values in the literature, suggests that the CBRT also considers growth and employment objectives within its flexible inflation targeting framework. The 91% exchange rate pass-through confirms that currency movements are rapidly reflected in prices in Turkey. Variance decomposition showing the effects of shocks on macroeconomic variables reveals that monetary policy shocks are the primary determinant of domestic economic fluctuations. The strong impact of US monetary policy on Turkey's exchange rate demonstrates sensitivity to external financial conditions. The results emphasize that the CBRT's inflation targeting practices differ from those of advanced country central banks and that institutional strengthening is needed.