Unconventional Monetary Policy Normalization and Implications on Turkish Economy

Dağlaroğlu T., Konukcu Önal D.

IABE 2015 San Francisco Conference , California, United States Of America, 20 - 22 December 2015, pp.40-41

  • Publication Type: Conference Paper / Summary Text
  • City: California
  • Country: United States Of America
  • Page Numbers: pp.40-41
  • Hacettepe University Affiliated: Yes


In the aftermath of the global financial crisis, ultra-loose monetary policy taken by major central banks and ample global liquidity has been associated with an increase in foreign participation in emerging market (EM) local-currency sovereign bond markets. The increase in foreign participation in EM sovereign bond markets gives rise to questions about the transmission of global shocks. In mid-2013, and more recently in January 2014, global uncertainty, including over the future path of US monetary policy, led to sizeable capital outflows from EMs and increased volatility in financial markets. A higher path for short-term policy rates, in turn, affects longer-term bond yields. Higher long-term U.S. interest rates have a direct effect on emerging market debt denominated in U.S. dollars. In addition, many Turkish corporate have borrowed significant amounts abroad in recent years, notably through corporate bond markets. While this trend created new vulnerabilities. Countries cannot fully protect themselves against such external shocks, but strong balance sheets and credible policy frameworks provide resilience in the face of financial volatility We use an empirical approach to assess the effect of U.S. monetary policy on EM policy rates is to estimate a Taylor equation by using a vector autoregressive model. Using a simple regression approach for monthly data going back to 2008, The results confirm that the extended Taylor equation is broadly consistent with the evolution of EME policy rate setting, results confirm that US monetary policy,10-year U.S. bond yields and VIX (a measure of market uncertainty and risk aversion) have a significant effect over sovereign spreads and domestic monetary policy stance.