Identifying the Liquidity Effects of Monetary Policy Shocks for a Small Open Economy: Turkey


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BERUMENT M. H. , Togay S., ŞAHİN A.

OPEN ECONOMIES REVIEW, vol.22, no.4, pp.649-667, 2011 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 22 Issue: 4
  • Publication Date: 2011
  • Doi Number: 10.1007/s11079-009-9164-2
  • Journal Name: OPEN ECONOMIES REVIEW
  • Journal Indexes: Social Sciences Citation Index, Scopus
  • Page Numbers: pp.649-667
  • Keywords: Liquidity effect, Open economy version of NBR, Small and open economies, VAR models, REAL EXCHANGE-RATE, AGNOSTIC IDENTIFICATION, MONEY, OUTPUT, INCOME, TRANSMISSION, COUNTRIES, PRICES

Abstract

This paper proposes a new liquidity measure for a small open economy. The new measure includes the net liquidity provided to the system by a central bank after accounting for the central bank's involvement in the foreign exchange market. Empirical evidence gathered from Turkey suggests that a positive innovation in liquidity increases output temporarily and that its effect on prices, exchange rate and money are permanently higher.