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Revisiting monetary policy effectiveness in Turkey using a FAVAR model

This study aims to perform a comparative analysis of the effectiveness of
 pass-through of policy rates in Turkey. We explore monetary transmission
 with different choices of instruments, i.e., the Turkish Lira Reference
 Interest Rate (TRLIBOR rate), BIST overnight rate, and Divisia money, and
 under different policy regimes, i.e., inflation targeting and new monetary
 policy regimes. We estimate a two-stage FAVAR model to use all of the
 available information set and obtain direct responses of
 disaggregated/sectorial series for the period 2005:12-2018:4. We extend the
 model setting proposed by Bernanke, Boivin, and Eliasz (2005) by considering
 the multiple-policy environment in Turkey. Our findings promote arguments
 that regard policy rate as a poor indicator of the policy stance in Turkey.