Working Paper #2009-04 – Financial Crisis, Monetary Policy Reform and the Monetary Transmission Mechanism in Turkey

Department of Economics
University of Delaware
Working Paper #2009-04

Financial Crisis, Monetary Policy Reform and the Monetary Transmission Mechanism in Turkey
 James L. Butkiewicz and Zeliha Ozdogan

ABSTRACT

 Turkey experienced a financial crisis in 2000-2001 which led to significant financial reforms. The reforms resulted in a switch to a floating exchange rate, granted greater central bank independence and pursuit of a more credible monetary policy. Investigation of the channels of monetary policy in both periods finds that monetary policy’s output effects have been strengthened considerable by the reforms. In the pre-crisis period monetary policy was highly inflationary, while in the post-crisis period, monetary policy targets low inflation and has become a tool for output stabilization.   These results support the importance of central bank independence and a credible policy.

 
JEL Codes: E42, E28

Keywords: Monetary Transmission Mechanism, Central Bank Independence, Inflation Targeting