An Interest-Rate-Spread-Based Measure of Turkish Monetary Policy

Posted: 29 Jul 2018

See all articles by Hakan Berument

Hakan Berument

Bilkent University - Department of Economics

Nildag Ceylan

Yildirim Beyazit University-Department of Banking and Finance

Burak Dogan

The Central Bank of the TRNC

Date Written: 2014

Abstract

A coherent method to measure the effectiveness of a monetary policy improves the monetary authority’s management capacity and renders the possibility of applying sound policies prior to and during a crisis. The trend in employing complicated and ambiguity-bearing unconventional monetary tools in the aftermath of the 2008 crisis has increased the value of such a method. The aim of this article is to introduce a coherent and consistent monetary policy evaluation method for Turkey. Accordingly, we suggest that innovations in the spread between overnight interest rates and Treasury auction interest rates are informative for exchange rate, output, and prices. Empirical evidence for this identification reveals that positive innovation in spread (implying a tight monetary policy measure) decreases output temporarily, permanently decreases prices, and appreciates local currency. This result is also robust to alternative specifications.

Keywords: monetary policy evaluation, interest rate spreads, business cycles

JEL Classification: E52, E58, E32

Suggested Citation

Berument, Hakan and Ceylan, Nildag and Dogan, Burak, An Interest-Rate-Spread-Based Measure of Turkish Monetary Policy (2014). Applied Economics, Vol. 46, No. 15, 2014. Available at SSRN: https://ssrn.com/abstract=3210249

Hakan Berument (Contact Author)

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey

Nildag Ceylan

Yildirim Beyazit University-Department of Banking and Finance ( email )

Cicek St. No 1 Ulus
Sciences Yildirim Beyazit University
Ankara, 06500
Turkey

Burak Dogan

The Central Bank of the TRNC ( email )

Bedrettin Demirel Str.
Lefkoşa
Cyprus

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