THE EFFECTS OF EXTERNAL SHOCKS TO MONETARY POLICIES IN TURKEY: SVAR ANALYSIS

Abstract

External economic shocks can cause significant fluctuations in domestic macroeconomic variables. Especially in emerging economies, such shocks can have stronger effects. In the context of these assessments, the study is aimed to analyze the potential impact of external shocks on monetary policy in Turkey. Within the framework of a simple New Keynesian model, a sample covering the quarterly data for the period between 1987: 2 and 2018: 2 was analyzed with the structural vector autoregressive (SVAR) model. In the modeling, growth and inflation rates as the main target variables and central bank policy rate as main intrument variable are defined in the same dependent variables vector. Findings show that growth and inflation have strong reciprocal relations. Due to the existing structural conditions of the economy, the effectiveness of the interventions to be made through the interest rate to the possible shocks will be low. Therefore, shocks are likely to have strong and persistence effects.