Abstract:

The goal of the central banks before the 2008 Global Crisis was to ensure price stability and thus create the necessary conditions for financial stability. However, the 2008 Global Crisis showed that the price stability would not ensure the functioning of the financial system without problems. In other words, the risks and imbalances arising with the global crisis have created a separate area of responsibility for central banks to ensure financial stability due to their last credit mercii. With the understanding of the importance of financial stability after the 2008 Global Crisis, the central banks have begun to implement a new monetary policy framework consisting of non-traditional monetary policy tools, where the price stability goal as well as the financial stability goal are monitored. The aim of this research is to identify the relationship between monetary policy and financial stability. To represent the monetary policy, open market transactions are based on the average interest rate of 2-14 days REPO. The research period covers the quarterly periods for the periods 2011-2019. The research is aimed at creating a financial stability index for Turkey. The financial stability index is made up of the subcomponents of the stock market, bond market and exchange market. The rating on the graph shows that when the financial stability is down, the monetary policy has a trend in the direction of the interest rate. According to the findings obtained by the Granger causality tests, a statistically meaningful relationship between volatility and exchange rates and currency policy interest rates has been found from the subcomponents of financial stability within the framework of exchange rate market stability. The BIST financial sector index has been used to explain the financial stability for the Pay market. In the Pay market, there has been a bilateral meaningful relationship between volatility and monetary policy interest rates from the subcomponents of stability.

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