| This dissertation aims to contribute to the literature on monetary policy transmission by improving our understanding of the Monetary Transmission Mechanism (MTM) in Turkey, an economy experiencing structural change, while considering the break of 2001 financial crisis: how and to what extent did monetary policy actions transmit to the real economy in Turkey during the pre-crisis and post-crisis periods? I investigate whether or not the transmission channels have changed in Turkey after the crisis period and study the strength of each of the four monetary transmission channels for the pre-crisis and post-crisis periods. Vector Autoregression (VAR) models are used to compare the MTM in the pre- and post-crisis periods in Turkey. The findings of this study demonstrate that the MTM works in both pre and post-crisis periods in Turkey. However, output exhibits a more persistent and faster reaction to policy shocks in the post-crisis period. The effect of policy shocks on prices suggests a price increase after an interest rate shock mostly in the pre-crisis period. This result is called as the "price puzzle" and is strongly supported by the relevant literature on MTM. The analyses demonstrate that the exchange rate channel is stronger in the post-crisis period, which is expected due to the switch to flexible exchange rate regime, although its effect on prices decreases in the post-crisis period. The asset price channel is found to be weak in both pre and post-crisis periods. There is a positive change in the effectiveness of the credit channel in the post-crisis period which is found to be weak in the pre-crisis period. The interest rate channel does not significantly contribute to the explanation of the variations in the output in either period, though it works better in the post-crisis period. |
