The Effectiveness of Monetary Policy Instruments of CBRT and Transfer Channels for Price Stability

Associated with the 2008 global crisis, many major central banks implemented excessive quantitative monetary expansion policies in order to be able to overcome the crisis. Central Bank of the Republic of Turkey (CBRT), in response to the major central banks excessive expansionary monetary policies, developed a new monetary policy strategy since April 2010. In the frame of new monetary policy strategy, it is aimed to sustain the price stability through applying different monetary policy instruments and transmission channels. In this new period, the monetary policy instruments applied by the CBRT are interest rate corridor, weekly repo interest rate, late liquidity window interest rates, required reserve ratios. Additionally, exchange rate and credit growth are preferred as the transmission channels. In this paper, for the period of 2010:5-2018-4, the effectiveness of monetary policy instruments and the transmission channels is analysed by conducting ？mpulse-response function, variance decomposition and Granger causality test in the frame of VAR analysis for the short-term. In the analysis of impact-response function and variance decomposition, it has been determined that the credit channel and the exchange rate channel, which are transmission channels, are effective on inflation. Granger causality test results, showing that there is a causal relationship between credit growth, exchange rate and inflation