Author/Authors :
Berument, Hakan State Planning Organization - Economic Modeling Department , Berument, Hakan Bilkent University - Department of Economics, Turkey , Nergiz Dincer, N. State Planning Organization - Economic Modeling Department , Nergiz Dincer, N. Bilkent University - Department of Economics, Turkey
Abstract :
This paper proposes a specification to identify the monetary policy for a small open economy, Turkey. The monetary policy is measured by using the spread between the Central Bank’s interbank interest rate and the depreciation rate of the domestic currency. A VAR type of model is used to identify monetary policy covering the period 1986:05-2000:10. The results suggest that tight monetary policy has a transitory effect on output but a permanent effect on prices. This specification is free of some puzzles such as the price puzzle and the liquidity puzzle that hampered some of the previous studies.
