The monetary policy decisions taken by central banks affect the aggregate demand and prices through the channels of monetary transmission mechanisms. For this reason, it is very important to understand the functioning of the channels of monetary transmission mechanism in order to identify the effects of monetary policies on the economy accurately and to determine a successful monetary policy. In this context, this study aims to test the efficiency of exchange rate channel in the transmission of monetary policies in Turkey. This study is important in terms of the periods it covers that the inflation targeting regime and the new policy strategies after the global financial crises were put into practice. Efficiency of exchange rate channel in Turkey is examined by using impulse-response, variance decomposition and Granger causality tests on the basis of VAR model with monthly data of 2003:1-2016:12. The findings indicate the inefficiency of exchange rate channel in Turkey during the review period.
Monetary Policy, Monetary Transmission Mechanism, Exchange Rate Channel, VAR Model