New Trends in Central Banking in Turkey; A Study on the Reserve Option Mechanism and the Asymmetric Interest Rate Corridor

Abstract

After 2008-09 Global Financial Crisis, central banks in many emerging market economies including the Central Bank of the Republic of Turkey adopted unconventional monetary policy tools to ensure financial stability in addition to the price stability. In this study, after giving a brief review of reserve option mechanism and asymmetric interest rate corridor practise, we tried to investigate the impact of the CBRT average funding interest rate, which is a component of assymmetric interest rate corridor, on the banking sector credit volume and foreign exchange rates by using monthly dataset covering the period of 2010:01-2019:02 and by empoloying the Fourier ADF unit root test, FourierSHIN conitegration test and Fourier Granger causality test. These techniques have the great advantage of permitting us to test for unit root, cointegration and causality while allowing for multiple structural breaks in the series. The results supported the cointegration and causality relationship between the CBRT average funding interest rate and banking sector credit volume and foreign exchange rates.