Monetary transmission mechanism in Turkey: an econometric analysis on the functioning of interest rate channel

The policy decisions of central banks affect economic variables. Therefore, it is of great importance to know the functioning of the monetary transmission mechanism in order to increase the efficiency of central banks on the real economy. In this study, using quarterly data for the period 2003-2018 in Turkey, the effect of the functioning of interest rate channel on selected macro variables is examined. The overnight interest rate in the interbank money market, reel GDP, IPI, GFCF and DPPI were selected as variables. In the study, Toda-Yamamoto causality test was used as econometric method. According to the results of Toda-Yamamoto causality test for IR, GFCF and reel GDP variables; it was found that interest rates related to the functioning of the interest rate channel affected the fixed capital investment and real gross domestic product. According to these results; it is concluded that for the functioning of the Keynesian interest rate channel of monetary transmission mechanism for periods specified in Turkey is valid. According to the Toda-Yamamoto causality test results for IR, DPPI and IPI variables; causality relationship between interest rates domestic producer price index and industrial production index has not been determined.