The Interaction between Monetary Policy and Macroprudential Policy in Turkey

The involvement of the macroprudential policies in financial stability frameworks in the post-crisis period led to coordination problems between monetary policy and macroprudential policy. The overlapping of the transmission mechanisms of the monetary policy and macroprudential policy where the financial system is at the centre of the pass-through effects and the ability of a policy to shape the domain of another policy have revealed the need to examine the interaction between these policies. The need for coordination along with the degree of mutual interaction have been higher in countries like Turkey where monetary and macroprudential policies have been carried out together as a result of the policy dilemmas which occurred due to the macro-financial risks brought about by the abundance of the global liquidity that emerged after the global financial crisis. In this context the aim of study is to examine the interactions between monetary policy and macroprudential policy in the period of new policy mix in Turkey. As a result of the evaluations made taking into account the situation of the economic cycle and the financial cycle, it was observed that the policies were moving in the same direction until September 2016 and there were no serious conflict between the ultimate targets. After that time, the policies has been started to move in the opposite direction and the need for coordination has been increased due to the conflict between the final targets.

Keywords: Price Stability, Financial Stability, Monetary Policy, Macroprudential Policy, Turkish Economy

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