MEASURING MONETARY POLICY IN EMERGING MARKET COUNTRIES
THE CASE TURKEY

Nilgün TERZIBAŞ (Universität Hohenheim)

This paper aims to measure monetary policy in emerging market economies with a vector autoregression (VAR) approach. The model of Cushman and Zha (1995) is followed, as emerging economies - in particular Turkey - are typical small open economies. The model is adjusted by integrating characteristics of emerging market countries. As countries experiencing high inflation show a substantial rise in the use of foreign currency, local interest rates for foreign-currency-dominated loans and assets gain an important role within the macroeconomics of these countries. Therefore, in addition to domestic and foreign interest rates as implied in the model of Cushman and Zha, the interest rate for foreign-denominated assets is integrated into the model presented in this paper. Another problem in empirical investigations are uncontinous data resulting from structural interruptions such as a change from a flexible exchange rate regime to a fixed exchange rate system, or vice versa, as it is not unusual for emerging market economies. In consideration of these two aspects the resulting dynamic of the modified model should give information about the effects of monetary policy shock as well as of foreign shock. Special role should inhere in exchange rate as a transmission mechanism; however, at status quo of this study results in particular cannot be stated.