The Importance of External Shocks and Global Monetary Conditions for A Small-Open Economy
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Title: |
The Importance of External Shocks and Global Monetary Conditions for A Small-Open Economy |
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Number: |
21/09 |
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Author(s): |
Gülnihal Tüzün |
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Language: |
English |
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Date: |
April 2021 |
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Abstract: |
The purpose of this study is to assess how do the domestic and foreign shocks affect the fundamental macroeconomic variables of a small-open economy, and in particular Turkey. The domestic supply, demand and monetary policy shocks as well as their global counterparts are identified by employing a Bayesian structural VAR model with sign and zero restrictions. After a US monetary tightening shock, the results demonstrate an appreciation of US Dollar against Turkish lira, a rise in the consumer price level in the Turkish economy, a contractionary monetary policy shock accompanied by a fall in the real output level. This reaction is a strong evidence of the existence of a global interest rate contagion present in the international macroeconomics literature. |
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Keywords: |
Bayesian VAR, Sign and zero restrictions, Shock identification, Monetary policy |
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JEL Codes: |
C11; C32; E52; F41 |
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