The impact of the Central Bank of the Republic of Turkey communication insturements on macroeconomic indicators

Since the period when Central Banks started to implement an independent monetary policy, the tools they use in accordance with their goals have began to vary. Eventually, after the 2008 crisis, the importance of Central Banks' communication with the public has gradually increased. The communication tool used by the monetary policy authority in the Turkish economy stands out as a frequently used tool, especially after the transition to the inflation targeting strategy in 2006. In this context, the communication of the Central Bank has been digitized by using monetary policy board meeting summaries and text mining techniques, then its effects on macroeconomic variables have been estimated using the FAVAR method. In addition to the communication index, the effect of the policy interest variable was also analyzed by using the FAVAR method. Furthermore, considering the period covered by the study, 2006-2020, is a variable period in terms of monetary policy implementation, the effects of both variables were analyzed in a structure in which multiple monetary policy instruments were included. As a result of the analysis, it is seen that communication is an important policy tool especially in terms of short-term market interest rates. However, communication also stands out as an effective policy tool in relation to the growth expectations of market participants. Finally, in the case where multiple monetary policy instruments are included, there is no significant loss in terms of the effectiveness of communication. Keywords: FAVAR, The Central Bank Communication, Monetary Policy Tools, Principal Components Analysis,Text Mining