The monetary transmission mechanism in Turkey

Abstract The effects of the interest rate decisions taken by the CBRT on the yields on the Government Domestic Debt Securities, stock prices, and exchange rate have been a matter of concern by the market. The markets may have been priced these assets before the decision as they attempt to predict the interest rate decision. Therefore, in this study, the relationship among the CBRT‘s interest rate decision and yields on these assets is analyzed by making a distinction between expected and unexpected interest decision in policy interest rate. In order to establish the relationship between the variables correctly, a unit root test was implemented. According to the test results, it was decided that the appropriate methodology was ARDL modeling. According to findings, it is revealed that the relationship between the policy interest rate and long-term interest rates is strong. Moreover, it was observed that the unexpected rate decision had a statistically significant effect on stock prices. As a result, it can be said that the CBRT interest rate decisions are effective on long-term interest rates and the stock prices and monetary transmission mechanism is effective and strong.