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Volume 7 (21) Number 3 pp. 83-102

Metin Tetik1, Mustafa Ozan Yıldırım2

1Department of Logistic Management, Usak University, Eylül Campus, Usak, Turkey
2
Department of Economics, Pamukkale University, Kinikli Campus, Pamukkale, Denizli, Turkey

Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach

Abstract:

This study investigates the interaction between fiscal and monetary policies and how crises affect the coordination between policymakers in Turkey. This study’s novelty is that a nonlinear Taylor rule indicating monetary policy response function is estimated based on the Threshold Generalized Method of Moments (Threshold GMM) methodology over the period January 2006—March 2020. The empirical findings reveal that when fiscal policy has an expansionary stage, especially in crises times, the policy interest rate does not react significantly to the inflation gap, output gap and real effective exchange rate gap in expansionary periods. On the contrary the policy interest rate gives statistically important responses to these variables during contractionary fiscal policy periods. Thus, the effectiveness of the Taylor rule appears in a period of contractionary fiscal policy. This situation gives rise to the significant policy implication that the monetary policymaker’s success in controlling inflation increases with the contractionary fiscal policy. Finally, it has been observed that effective coordination between monetary and fiscal policies did not occur during crisis periods, but compatible coordination was achieved in other periods.

pub/2021_3_83.pdf Full text available in Adobe Acrobat format:
http://www.ebr.edu.pl/volume21/issue3/2021_3_83.pdf
Keywords: economic crises, fiscal policy, monetary policy, nonlinear econometric model, policy coordination, Threshold GMM.

DOI: 10.18559/ebr.2021.3.6

For citation:

MLA Tetik, Metin, and Mustafa Ozan Yıldırım. "Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach." Economics and Business Review EBR 21.3 (2021): 83-102. DOI: 10.18559/ebr.2021.3.6
APA Tetik, M., & Yıldırım, M. O. (2021). Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach. Economics and Business Review EBR 21(3), 83-102 DOI: 10.18559/ebr.2021.3.6
ISO 690 TETIK, Metin, YILDIRIM, Mustafa Ozan. Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach. Economics and Business Review EBR, 2021, 21.3: 83-102. DOI: 10.18559/ebr.2021.3.6