The asymmetric effects of monetary policy on economic activity in Turkey

Abstract

In this paper, we examine the asymmetric effects of monetary policy shocks on economic activity in Turkey. We use quarterly data for the gross domestic product (GDP) and industrial production along with their sub-sectors for the 2006Q1–2017Q4 period. We implement a Markov Switching Model to endogenously determine the states of the economy with two different variables: we first use real aggregate GDP data to determine the expansionary or contractionary business cycles and then we use credit data to determine expansionary or contractionary credit cycles. We find that the monetary policy shocks have stronger effects on both the GDP, industrial production and their sub-components during contractionary periods, while the results are much weaker for the expansionary periods. Moreover, the asymmetric effects become more apparent when we use credit cycles for the determination of economic states.