Possible effects of domestic and foreign factors on monetary policy implementation in Turkey: a DSGE-VAR approach

Abstract

In this paper, we attempt to explore the possible effects of technology, foreign output, price and terms of trade shocks on short-term interest rates in Turkey within a dynamic stochastic general equilibrium-vector autoregressive (DSGE-VAR) framework. In a sense, the primary aim of our paper is to analyse whether the Central Bank of the Republic of Turkey (CBRT) should consider the role of technology, foreign output, price and terms of trade shocks in its monetary policy implementation. Empirical results reveal that the above-mentioned factors have importance for the CBRT, which intends to control economy-wide interest rates in order to maintain price stability.