Unorthodox monetary policy with real-time measurements

Abstract

In this study, asymmetric interest rate corridor which is a part of Central Bank of Republic of Turkey’s unorthodox monetary policy is analyzed between the period 2011 and 2017. Using Bayesian filtering methods, output and inflation gaps are determined with the real-time measurements. In light of these gaps, an augmented Taylor rule is implemented to analyze the behavior of the instruments in response to these gaps. Our results indicate that policy rate, upper gap and upper bound do not react to these gaps, yet lower bound answers to control these gaps. Upper and Lower gap reacts only to output gap, whereas gap only responds to inflation gap in our analysis. Moreover, VAR analysis has been conducted on the gap. The gap responds to exchange rate, output gap and inflation gap shocks.