Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach

• Autorzy: Metin Tetik , Mustafa Ozan Yıldırım
• Języki publikacji: EN

Abstrakty

EN

This study investigates the interaction between fiscal and monetary policies and how crises affect the coordination between policymakers in Turkey. This study's novelty is that a nonlinear Taylor rule indicating monetary policy response function is estimated based on the Threshold Generalized Method of Moments (Threshold GMM) methodology over the period January 2006-March 2020. The empirical findings reveal that when fiscal policy has an expansionary stage, especially in crises times, the policy interest rate does not react significantly to the inflation gap, output gap and real effective exchange rate gap in expansionary periods. On the contrary the policy interest rate gives statistically important responses to these variables during contractionary fiscal policy periods. Thus, the effectiveness of the Taylor rule appears in a period of contractionary fiscal policy. This situation gives rise to the significant policy implication that the monetary policymaker's success in controlling inflation increases with the contractionary fiscal policy. Finally, it has been observed that effective coordination between monetary and fiscal policies did not occur during crisis periods, but compatible coordination was achieved in other periods. (original abstract)

Słowa kluczowe

EN

Economic crisis; Monetary policy; Fiscal policy; Economic coordination; Nonlinear models; Threshold analysis

PL

Kryzys gospodarczy; Polityka pieniężna; Polityka fiskalna; Koordynacja gospodarcza; Modele nieliniowe; Analiza progowa

• Czasopismo: Economics and Business Review
• Rocznik: 2021
• Tom: 7 (21)
• Numer: nr 3
• Strony: 83--102

Twórcy

autor

Metin Tetik

• Usak University, Eylül Campus, Usak, Turkey

autor

Mustafa Ozan Yıldırım

• Pamukkale University, Kinikli Campus, Pamukkale, Denizli, Turkey

Bibliografia

• Abdel-Haleim, S.M. (2016). Coordination of monetary and fiscal policies: The case of Egypt. International Review of Research in Emerging Markets and the Global Economy, 2(4), 933-954.
• Afonso, A., Alves, J., & Balhote, R. (2019) Interactions between monetary and fiscal policies. Journal of Applied Economics, 22(1), 132-151. https://doi.org/10.1080/15140326.2019.1583309
• Akdeniz, C., & Çatik, A.N. (2019). The impact of the financial conditions on validity of the Taylor rule: Empirical evidence on Turkey. TESAM Academy, 6, 107-126.
• Aktaş, Z., Kaya, N., & Özlale, Ü. (2010). Coordination between monetary policy and fiscal policy for an inflation targeting emerging market. Journal of International Money and Finance, 29(1), 123-138.
• Albayrak, N., & Abdioğlu, Z. (2015). Estimating backward and forward-looking monetary policy reaction functions: Taylor rule. Suleyman Demirel University Journal of Faculty of Economics & Administrative Sciences, 20(4).
• Arby, M.F., & Hanif, M.N. (2010). Monetary and fiscal policies coordination: Pakistan's experience. SBP Research Bulletin, 6(1), 3-13.
• Arestis, P., Şen, H., & Kaya, A. (2019). Fiscal and monetary policy effectiveness in Turkey: A comparative analysis. Panoeconomicus, 1-24. https://doi.org/10.2298/PAN190304019A
• Arora, S. (2018). Regime-switching monetary and fiscal policy rules and their interaction: An Indian case study. Empirical Economics, 54(4), 1573-1607.
• Bulut, U. (2019). Does the Central Bank of the Republic of Turkey respond asymmetrically to inflation and output?. Margin: The Journal of Applied Economic Research, 13(4), 381-400.
• Büyükbaşaran, T., Çebi, C., & Yılmaz, E. (2020). Interaction of monetary and fiscal policies in Turkey. Central Bank Review, 20(4), 193-203.
• Cakmakli, C., & Demiralp, S. (2020). A dynamic evaluation of central bank credibility. (Koç University-TUSIAD Economic Research Forum Working Papers No. 2015).
• Caporale, G.M., Helmi, M.H., Çatık, A.N., Ali, F.M., & Akdeniz, C. (2018). Monetary policy rules in emerging countries: Is there an augmented nonlinear Taylor rule?. Economic Modelling, 72, 306-319.
• Cevik, E.I., Dibooglu, S., & Kutan, A.M. (2014). Monetary and fiscal policy interactions: Evidence from emerging European economies. Journal of Comparative Economics, 42(4), 1079-1091.
• Civcir, I., & Akçağlayan, A. (2010). Inflation targeting and the exchange rate: Does it matter in Turkey?. Journal of Policy Modeling, 32(3), 339-354.
• Clarida, R., Gali, J. & Gertler, M. (1998). Monetary policy rules in practice: Some international evidence. European Economic Review, 42(6), 1033-1067.
• Çoban, H. (2015). Economic coordination in the framework of the relationship between inflation targeting and fiscal discipline: The case of Turkey. Sosyoekonomi, 23(26), 215-228.
• Ćorić, T., Šimović, H., & Deskar-Škrbić, M. (2015). Monetary and fiscal policy mix in a small open economy: The case of Croatia. Economic research - Ekonomska istraživanja, 28(1), 407-421.
• Cukadar, P.O., & Algan, N. (2018). Institutional change and economic policy coordination for Turkey. Business and Economics Research Journal, 9(3), 513-530.
• Daude, C., Yeyati, E.L., & Nagengast, A.J. (2016). On the effectiveness of exchange rate interventions in emerging markets. Journal of International Money and Finance, 64, 239-261.
• Demid, E. (2018). Fiscal and monetary policy: Coordination or conflict?. International Economic Journal, 32(4), 547-571.
• Demiralp, S., & Demiralp, S. (2019). Erosion of Central Bank independence in Turkey. Turkish Studies, 20(1), 49-68.
• Dickey, D.A., & Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 49(4), 1057-1072.
• Dixit, A., & Lambertini, L. (2001). Monetary-fiscal policy interactions and commitment versus discretion in a monetary union. European Economic Review, 45(4-6), 977-987.
• Elhendawy, E.O. (2019). Coordination or dominance of fiscal and monetary policy in Egypt. International Journal of Economics and Finance, 11(12), 1-28.
• Fetai, B. (2013). The effectiveness of fiscal and monetary policy during the financial crisis. Journal of Economics and Business, 16(2), 3-66.
• Frascaroli, B.F., Oliveira, J.D.C.T.D., & Almeida, M.A.G.D. (2019). Public debt, economic policy coordination and their effectiveness: Lessons from the EMU and Brazil. Journal of Economic Policy Reform, 24(2), 219-235.
• Gomes de Silva, C., & Vieira, F. (2014, December). Monetary and fiscal policy in the world economy: Coordination before and after the financial crisis. Área: Macroeconomia Aplicada, 36, 9-12.
• Guler, A. (2019a). Interaction of monetary and fiscal policies in Turkey: A dynamic time series data analysis. Business and Economics Research Journal, 10(5), 1039-1049.
• Guler, A. (2019b). Coordination issue between monetary and fiscal policies: Case of Turkey in the context of interaction between fiscal discipline and price stability. In A. Akinci (Ed.), Interdisciplinary public finance, business and economics studies (vol. 2, pp. 37-47). Berlin: Peter Lang Publishing.
• Güney, P.Ö. (2016). Does the central bank directly respond to output and inflation uncertainties in Turkey?. Central Bank Review, 16(2), 53-57.
• Hansen, B.E. (1996). Inference when a nuisance parameter is not identified under the null hypothesis. Econometrica: Journal of the Econometric Society, 64(2), 413-430.
• Jawadi, F., Mallick, S.K., & Sousa, R.M. (2016). Fiscal and monetary policies in the BRICS: A panel VAR approach. Economic Modelling, 58, 535-542.
• Kitrar, L., & Lipkind, T. (2021). The relationship of economic sentiment and GDP growth in Russia in light of the Covid-19 crisis. Entrepreneurial Business and Economics Review, 9(1), 7-29. https://doi.org/10.15678/EBER.2021.090101
• Kwiatkowski, D., Phillips, P.C., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?. Journal of Econometrics, 54(1-3), 159-178.
• Laurens, B., & Piedra, E.G. (1998). Coordination of monetary and fiscal policies. (A Working Paper of International Monetary Fund, IMF).
• Lee, J., & Strazicich, M.C. (2003). Minimum Lagrange multiplier unit root test with two structural breaks. Review of Economics and Statistics, 85(4), 1082-1089.
• Liu, D., Sun, W., & Chang, L. (2021). Monetary-fiscal policy regime and macroeconomic dynamics in China. Economic Modelling, 95, 121-135.
• Martin, C., & Milas, C. (2013). Financial crises and monetary policy: Evidence from the UK. Journal of Financial Stability, 9(4), 654-661.
• Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: Journal of the Econometric Society, 57(6), 1361-1401.
• Petrevski, G., Trenovski, B., & Tashevska, B. (2019). The effectiveness of fiscal and monetary policies in a small open economy - the case of Macedonia. Post-Communist Economies, 6, 805-821.
• Phillips, P.C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
• Sivramkrishna, S., & Nandipati, D.T. (2019). Turkey's macroeconomic policy challenges in the aftermath of the 2018 crisis: A sectoral financial balances analysis. Theoretical & Applied Economics, 4(621), 111-128.
• Stawasz-Grabowska, E. (2020). Sovereign credit rating determinants of the EU countries: The role of the euro area crisis and its legacy. Entrepreneurial Business and Economics Review, 8(2), 47-69. https://doi.org/10.15678/EBER.2020.080203
• Stawska, J., Malaczewski, M., & Szymańska, A. (2019). Combined monetary and fiscal policy: The Nash Equilibrium for the case of non-cooperative game. Economic research - Ekonomska istraživanja, 32(1), 3554-3569.
• Stawska, J., Malaczewski, M., Malaczewska, P., & Stawasz-Grabowska, E. (2021). The Nash equilibrium in the policy mix model for Czechia, Hungary, and Romania. Cogent Economics & Finance, 9(1), 1869380.
• Tamasauskiene, Z., & Žičkienė, S. (2021). An investigation of the nexus between globalization dimensions and income inequality. Entrepreneurial Business and Economics Review, 9(2), 39-53. https://doi.org/10.15678/EBER.2021.090203
• Taylor, J.B. (2013). The effectiveness of central bank independence vs. policy rules. Business Economics, 48(3), 155-162.
• Taylor, M.P., & Davradakis, E. (2006). Interest rate setting and inflation targeting: Evidence of a nonlinear Taylor rule for the United Kingdom. Studies in Nonlinear Dynamics & Econometrics, 10(4).
• Tetik, M., & Ceylan, R. (2016). Investigation of interaction between monetary and fiscal policy in Turkey: SVAR Approach. Journal of Multidisciplinary Developments, 1(1), 113-121.
• Tetik, M., & Ceylan, R. (2017). Prisoner dilemma between policy makers: Evidence from Turkey. Bizinfo, 8(2), 1-13.
• Tule, M.K., Onipede, S.F., & Ebuh, G.U. (2020). Monetary and fiscal policy mix in a small open economy: Evidence from Nigeria. Scientific African, 8, e00346.
• Yağcıbaşı, Ö.F., & Yıldırım, M.O. (2019). Estimating Taylor rules with Markov switching regimes for Turkey. Romanian Journal of Economic Forecasting, 22(3), 81.
• Żak, M., & Garncarz, J. (2020). Coronavirus epidemic management and economic policy towards the challenges associated with the COVID-19 epidemic in selected European Union countries. International Entrepreneurship Review, 6(4), 21-34. https://doi.org/10.15678/IER.2020.0604.02

Identyfikatory

DOI

10.18559/ebr.2021.3.6