MONETARY TRANSMISSION MECHANISMS: INSIGHTS FROM THE TURKISH ECONOMY

Abstract

The Monetary Transmission Mechanism (MTM) plays a pivotal role in shaping real economic activities, including production, consumption, and employment, by channeling the impact of monetary policy decisions. This dynamic process encompasses the total demand resulting from these policy decisions, as well as their effects on inflation expectations and rates. In the contemporary economic landscape, one of the most prominent repercussions of fluctuations in monetary policy is witnessed in the financial choices made by businesses. Such policy changes can significantly influence enterprises' sales, production expenditures, and balance sheets, spanning both durable and nondurable goods production and impacting households' overall expenditure. The MTM can be broadly categorized into two primary components. Firstly, it encompasses the analysis of market interest rate fluctuations, delving into how monetary policy decisions affect the asset landscape, including foreign exchange rates and financial market conditions. Secondly, it scrutinizes the production-related aspects affected by changes in financial market conditions and inflation rates. The MTM operates through a multifaceted network of channels, influencing households' purchasing decisions and altering firms' balance sheets. This article underscores the diverse channels that constitute the MTM, including the exchange rate channel, interest rate channel, bank credit channel, and balance sheet channel. By exploring these channels, it seeks to unravel the intricate pathways through which monetary changes reverberate across total demand and production levels