Asymmetric Effects of Monetary Policy Shocks on the Economic Performance: Empirical Evidence from Turkey

This study investigates asymmetric effects of monetary policy shocks on the macroeconomic variables: exchange rate, output and inflation for an emerging economy, Turkey, by using monthly data between 1990 and 2014. The innovative nonlinear vector autoregressive model of Kilian and Vigfusson (2011), which allows us to observe the effect of different stance (tight or loose) and different size (small or large) of monetary policy action, is employed. The empirical evidence reveals that tight monetary policy, which is captured with a positive shock to interest rate, decrease the exchange rate, output and prices as the economic theory suggest. The effects of the loose monetary policy, which is captured with a negative shock to interest rate, have opposite an effect on these variables. However, the effects of the loose monetary policy are less than the effect of the tight monetary policy the easy monetary policy shocks are less effective than the tight monetary policy shocks. Moreover, as the magnitude of shock increases, the difference between the effects of tight and loose monetary policy policies increase.