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      Monetary transmission mechanism in Turkey under the monetary conditions index: an alternative policy rule

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      Author(s)
      Us, V.
      Date
      2004
      Source Title
      Applied Economics
      Print ISSN
      0003-6846
      Publisher
      Routledge
      Volume
      36
      Issue
      9
      Pages
      967 - 976
      Language
      English
      Type
      Article
      Item Usage Stats
      190
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      Abstract
      This study analyses monetary transmission mechanism in Turkey using a small structural macroeconomic model. The core equations of the model consist of aggregate demand, wage-price setting, uncovered interest rate parity, foreign sector and a monetary policy rule. The aim of the paper is to analyse the disinflation path, the output gap, the output level, the exchange rate and the interest rate, and also the output-inflation variance frontier of the economy under various scenarios. The first scenario assumes that a standard Taylor rule is implemented as the policy rule. In the alternative scenario, instead of the standard Taylor rule, the MCI, Monetary Conditions Index - combination of the changes in the short-term real interest rate and in the real effective exchange rate in a single variable - is used as a policy instrument. The results indicate that the economy stabilizes much more quickly and shows significantly less volatility under this new setting. Therefore, the paper concludes that the policymakers should consider using MCI as an instrument when conducting monetary policy. © 2004 Taylor and Francis Ltd.
      Keywords
      Economic conditions
      Exchange rate
      Financial market
      Interest rate
      Monetary policy
      Eurasia
      Turkey
      Permalink
      http://hdl.handle.net/11693/24285
      Published Version (Please cite this version)
      https://doi.org/10.1080/0003684042000233195
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      • Department of Economics 384
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