Description
Title: How Effective Are Tools for Macroprudential Policy? proof from Turkey
Abstract: The reserve option mechanism and the interest rate corridor, two macroprudential tools used by the Central Bank of the Republic of Turkey in the wake of the global financial crisis, are empirically analyzed in this study. Using data from October 2010 to May 2018, a nine-variable structural vector autoregressive model for Turkey is estimated using Bayesian methods. To recognize the reserve requirement and the interest rate shocks through the bank lending channel, a set of timing, zero, and sign restrictions are put in place. The findings show that the new policy framework is effective at reducing exchange rate volatility and enhancing the current account balance. The interest rate performs better at regulating the price level, even though reserve requirements appear to be more effective at regulating the current account and partially the exchange rate.
Keywords: Bayesian vector auto regression; macroprudential policy; reserve requirements; interest rate corridor; reserve option mechanism
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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