Abstract:

This article aims to examine the change in the monetary transfer mechanisms in Turkey taking into account the role of financial conditions. In this framework, monetary variables and the effects of financial conditions on prices and economic activity were analyzed by the influence-to-effect functions obtained from the predictions of the time-changing parameter vector autore (TVP-VAR) models. The results show that the functioning of the transmission mechanisms has changed significantly over time. The negative and meaningful reaction of prices to the interest rate shocks after 2006 indicates that the interest rate channel has worked effectively along with the transition to the open inflation target. The shocks on the financial conditions index have a positive and meaningful impact on economic activity, especially in financial crisis periods. Therefore, this can be considered as a good forecast for the variable economic activity.

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