Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey

Turkey experienced a financial crisis in 2000-2001, which led to significant financial reforms. The reforms resulted in a switch to a floating exchange rate, granted greater central bank independence and pursuit of a more credible monetary policy. Investigation of the channels of monetary policy in both periods finds that monetary policy's output effects have been strengthened considerably by the reforms. In the precrisis period, monetary policy was highly inflationary, while in the post-crisis period, monetary policy targets low inflation and has become a tool for output stabilization. These results support the importance of central bank independence and a credible policy.