Abstract
The aim of this study is to investigate the association between monetary policy and exchange rates in Turkey for two periods: Pre (December 2001-December 2007) and Post (January 2010-January 2016) global financial crisis (GFC). The ARDL, FMOLS, CCR and DOLS models are used to achieve the objective of this study. The results show that there is a significant impact of monetary policy, namely money supply and short-term interest rates, on exchange rates in Turkey before and after the GFC. The results suggest that the Central Bank of Turkey affected exchange rates after the GFC more than before the GFC.
Highlights
Many countries were impacted by the global financial crisis (GFC) that occurred in 2008
In order to reflect the main role of the central banks before and after the GFC, the paper uses two independent variables to measure monetary policy, namely money supply and short-term interest rates variables, which are determined directly by the central bank
In order to reflect the main role of the central banks before and after the GFC, the paper uses two independent variables to measure monetary policy, namely money supply and shortterm interest rates variables, which are determined directly by the central bank
Summary
Many countries were impacted by the global financial crisis (GFC) that occurred in 2008. The central banks were required to pay attention to the financial markets and control inflation through money supply and interest rate adjustments aimed at improving the markets, such as enhancing the value of the domestic currency against exchange rate fluctuations. Those fluctuations play a conclusive role, even in the most liquid financial markets (Holtemöller and Mallick, 2016). The 2008 financial crisis caused highly volatile shocks across all global markets, including exchange rates (Ehrmann and Fratzscher, 2009; Backhaus and Isiksal, 2016) In this way, the association between monetary policy and the exchange rates is considered an important issue for the literature. The Turkish Central Bank attempted to improve the markets by injecting liquidity into the financial markets to enhance the liquidity; resultantly, the central bank either increased money supply during the crisis or adjusted interest rates to improve stock market and exchange markets
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