2012 Cilt 31 Sayı 1

Permanent URI for this collectionhttps://hdl.handle.net/11452/18055

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Browsing by Subject "Augmented Taylor rule"

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    Stock market uncertainty and monetary policy reaction function: Evidence from Turkey
    (Uludağ Üniversitesi, 2012) Nargeleçekenler, Mehmet; Aklan, Nejla Adanur
    In this paper we examine whether the Central Bank of Republic of Turkey (CBRT) compensates for enhanced stock market uncertainty by cutting the policy rates in the post-2002 period when inflation targeting regime was applied. By this way, it is demonstrated that whether CBRT considered financial stability while determining policy rates. In this paper we extend the standard Taylor rule in order to assess whether the CBRT responds to stock market uncertainty. To describe the behavior of the CBRT augmented forward-looking Taylor rule, we used the Generalized Methods of Moments (GMM) estimator. We find that the parameters in the monetary policy rule are statistically significant. We show that, given a certain level of inflation and output, Turkish central bank rates are lower when stock market uncertainty is high and vice versa. However, the degree of this relationship is very low. According to study results, the CBRT does not use as key factor the stock market uncertainty to determine policy rates.