The asymmetric effects of monetary policy shocks:Positive and negative shocks asymmetry in Turkish economy

Although, neutrality of the long-term monetary policies is widely accepted in the literature, their short-term effects are subject to an intensive debate. One of the important areas of the debate about the short-term effects is asymmetry effects of the monetary policy shocks. One of the important types of the asymmetry effects, mentioned in the literature, is positive and negative shock asymmetry. This asymmetry is explained that a negative monetary policy shock would have a greater effect on the output compared to a positive monetary shock, which has a similar strength. The works on the positive and negative shock asymmetry in economic theory can be divided in two main categories. These are supply sided asymmetry which is a result of price rigidity and demand sided asymmetry which depend on monetary market conditions. Both approaches maintain that negative shocks have a greater effect on the output, but they disagree on the direction of asymmetry on the prices. The effect of the negative shocks on the prices is weaker in supply sided asymmetry and greater in demand sided asymmetry compared to positive shocks. In this sense, the works on the asymmetrical effects examine which of the theoretical approaches is valid for the economy of a country by comparing the effects of the shocks on the prices. ii In this study, whether there is positive or negative shock asymmetry in the Turkish economy and which type of asymmetry is valid, is tested with a two-phased OLS method. Test result show that there is demand sided positive and negative shock asymmetry in the Turkish economy. In other words, negative monetary policy shocks have a greater effect on the output and prices. As a result, it is concluded that as far as the Turkish economy is concerned monetary policy cannot be a powerful instrument against stagnation and monetary policy has a greater chance of success in fighting inflation compared to its chance against deflation. Key