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Pre-IT Policy, Post-IT Policy, and the Real Sphere in Turkey

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Handbook of Financial Econometrics and Statistics

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Abstract

We estimate two SVECM (structural vector error correction) models for the Turkish economy based on imposing short-run and long-run restrictions that account for examining the behavior of the real sphere in the pre-IT policy (before inflation-targeting adoption) and post-IT policy (after inflation-targeting adoption).

Responses reveal that an expansionary interest policy shock leads to a decrease in price level, a fall in output, an appreciation in the exchange rate, and an improvement in the share prices in the very short run for the most of pre-IT period.

Central Bank of the Republic of Turkey (CBT) stabilizes output fluctuations in the short run while maintaining a very medium-run inflation target since January 2006. One of the most important results of this study is that the impact of a monetary policy shock on the real sphere is insignificant during the post-IT policy.

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Author information

Authors and Affiliations

  1. Department of Economic Development, Faculty of Economics and Management of Sfax, University of Sfax, Airport road Km 4, 3018, Sfax, Tunisia

    Ahmed Hachicha

  2. Department of Finance and Economics, Rutgers Business School, Rutgers, The State University of New Jersey, 94 Rockefeller Rd. Levin Bldg., Piscataway, NJ, 08854-8054, USA

    Cheng-Few Lee

  3. Graduate Institute of Finance, National Chiao Tung University, Hsinchu, Taiwan

    Cheng-Few Lee

Authors
  1. Ahmed Hachicha
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  2. Cheng-Few Lee
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Corresponding author

Correspondence to Cheng-Few Lee .

Editor information

Editors and Affiliations

  1. Department of Finance and Economics, Rutgers Business School, Rutgers, The State University of New Jersey, Piscataway, New Jersey, USA

    Cheng-Few Lee

  2. Center for PBBEF Research, North Brunswick, New Jersey, USA

    John C. Lee

Appendices

Appendix 1: Joint Forecast Error Covariance Matrix, Pre-IT, and Post-IT Forecasting Results

The forecast errors have zero mean and, hence, the forecasts are unbiased. The joint forecast error covariance matrix for all forecasts up to horizon h is

$$ \begin{array}{l} Cov\left(\begin{array}{l}{y}_{T+1}-{y}_{T+1/T}\\ {}\kern3.4em..\\ {}\kern3.4em.\\ {}\\ {}{y}_{T+h}-{y}_{T+h/T}\end{array}\right)=\left(\begin{matrix} I & 0 &. &. & 0 \\ {} {\Phi}_1 & I &. &. & 0 \\ {}. &. &. &. &. \\ {}. &. &. &. &. \\ {} {\Phi}_{h-1} & {Q}_{h-2} &. &. & I \end{matrix}\right)\left({\displaystyle {\sum}_u\otimes {I}_h}\right)\\ {}{\left(\begin{matrix} I & 0 &. &. & 0 \\ {} {\Phi}_1 & I &. &. & 0 \\ {}. &. &. &. &. \\ {}. &. &. &. &. \\ {} {\Phi}_{h-1} & {\Phi}_{h-2} &. &. & I \end{matrix}\right)}^{\prime}\end{array} $$
(59.9)

where y T + 1/T = y T + j for j ≤ 0.

Assuming normally distributed disturbances, these results can be used for setting up forecast intervals for any linear combination of these forecasts.

See Tables 59.1 and 59.2, Figs. 59.1 and 59.2.

Appendix 2: Pre-IT and Post-IT Cointegration Tests

See Tables 59.3 and 59.4.

Appendix 3: Pre-IT Macro Variables Responses

See Fig. 59.3.

Appendix 4: Post-IT Macro Variables Responses

See Fig. 59.4.

Appendix 5: Impulse Responses and Confidence Intervals

See Tables 59.5 and 59.6.

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Hachicha, A., Lee, CF. (2015). Pre-IT Policy, Post-IT Policy, and the Real Sphere in Turkey. In: Lee, CF., Lee, J. (eds) Handbook of Financial Econometrics and Statistics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7750-1_59

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  • DOI: https://doi.org/10.1007/978-1-4614-7750-1_59

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  • Publisher Name: Springer, New York, NY

  • Print ISBN: 978-1-4614-7749-5

  • Online ISBN: 978-1-4614-7750-1

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