Abstract:

Monetary policy regaining popularity post 2008 period, massively increased the balance sheets of Turkish Central Bank balance sheet al well by 348 per cent from 2010 until 2019. Disconnect between Turkish macroeconomic growth and the monetary base, however, increases the question on effectiveness of monetary policy implemented by the Turkish Central Bank. Main purpose of this research is to investigate the effectiveness of monetary policy. To this end, we implement an empirical analysis of the relationship between monetary policy, bank loans and economic activity.  Findings reveal that the monetary transmission mechanism through bank lending channel is not effective in Turkey. Monetary policy shifts change loan supply. Yet, the production remains unresponsive to the changes in interest rates, rendering monetary policy ineffective. Despite increasing loan supply, gross domestic product does not increase significantly. By the same token, contractionary monetary policy shifts do not hold the inflation down.

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