Investigation of monetary policy effectiveness of Turkey: TVP-VAR Model approach

The aim of this study is to investigate how the effects of monetary policies implemented in Turkey between 1994-2020 on the economy have changed over time. Turkey has an economy that includes many structural changes and crisis periods. At the same time, the country's financial and economic stability was significantly affected by the uncertainties in the exchange rate. Therefore, the time-varying parameter VAR with stochastic volatility (TVP-VAR-SV) model was used to see the change in the effect of monetary policy practices on the economy over time, taking into account the uncertainties in the economy. While determining the effects of monetary policy, the spread, which is obtained by subtracting long-term interest rates from short-term interest rates, is used as an appropriate measure. Empirical evidence shows that positive innovation in spread (implying a tight monetary policy measure) decreases inflation, economic activity, and credit volume growth but increases the local currency appreciated. In addition, it has been determined that the reactions to the monetary policy shock have changed over time. Especially after 2017, it was revealed that the responses to positive innovation in spread increased in absolute value. In other words, it has been observed that the effects of monetary policies implemented after 2017 on the economy have increased.