The Effects of Monetary Policy Expectations on Financial Investment Instruments: The Case of Turkey

Abstract

This study analyzes how the changes in expected monetary policy decisions affect the price of financial instruments and the relationships among financial instruments. The study employed a structural vector auto regressive (SVAR) model to investigate the relationship between expected monetary policy shocks and financial instruments in the framework of recessionary and expansionary sub periods. One of the most important findings is that the measure of expected monetary policy reacts to high frequency changes in financial instruments and, in return, financial instruments respond to changes in expected monetary policy. These findings support Cecchetti, Genberg, Lipsky and Wadhwani(2000) argument that "central banks are not neutral to financial markets shocks".