The relationship between monetary policy and asset prices: The case of Türkiye, South Afri̇ca and Brazil

There are many decisions that central banks make to achieve targets such as price stability and financial stability using monetary policy tools. With the 2008 global economic crisis, it has been widely accepted that inflation targeting alone is not sufficient for the functioning of economic stability and that the functioning of financial stability is also necessary. The effect of bubbles in asset prices, especially in the economic crises experienced since the 1990s, has brought the relationship between the transmission mechanism of monetary policy and asset prices to the agenda. An effective monetary transmission mechanism enables central banks to influence aggregate demand and inflation by using the policy tools at their disposal. The main objective of this study is to analyze the impact of monetary policy rate decisions on asset prices for Turkey, South Africa and Brazil in the aftermath of the global economic crisis. The analysis covers the period 2010:01 - 2022:12 and the SVAR model is used by including block exogeneity in the analysis. According to the results of the impulse response analysis, the policy rate is important in explaining the real effective exchange rate, three-month treasury bills and ten-year government bonds for Turkey, while the policy rate is important for exogenous variables in South Africa. In Brazil, the policy rate is important in explaining treasury bills and government bonds. Moreover, the world commodity price index is found to be effective on the policy rate. Keywords: Monetary transmission mechanism, central bank, economic crisis, asset prices, policy rate, SVAR