The effects of monetary transmission channels on inflation: The case of Türkiye

A country's achievement of objectives such as economic growth, employment growth, and price stability is related to the success of the implemented monetary policy. The institutions responsible for managing monetary policy are the countries' central banks. The impact of policies implemented by central banks on economic activity is mediated through monetary transmission channels. Monetary transmission channels, in turn, are effective in helping central banks keep inflation under control and maintain price stability. The aim of this study is to examine the effects of monetary transmission channels on inflation in Türkiye. In this context, monthly data from 2011:44 to 2025:04 were used to examine the effectiveness of the interest rate channel, exchange rate channel, other asset prices/stock market index channel, and credit channel in Türkiye. Initially, the study employed ADF and PP unit root tests. Subsequently, a VAR model was constructed, and the effectiveness of monetary transmission channels was examined through impulse-response analysis. According to the results of the impulse-response analyses, a 1-standard-deviation positive shock to interest rates does not have a significant effect on prices, while 1-standard-deviation positive shocks to other variables affect prices in line with theoretical expectations. The study then proceeded with a causality analysis based on the VAR model, running from variables indicating monetary transmission channels to domestic prices. The findings from the Granger causality analysis support the findings of the VAR model. The findings of both tests indicate that the interest rate channel is ineffective in Türkiye, but the exchange rate channel, other asset price channels represented by the stock market index, and the credit channel are effective.