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Abstract: It is known that periods of high uncertainty in a country have significant effects on economic activities. Therefore, monetary policymakers should consider the degree of uncertainty in the decision-making process. In Turkey, changing the form of government from the parliamentary system to a presidential system in 2018, combined with the global Covid pandemic that started in 2020, caused an extraordinary increase in uncertainty and became one of the main sources of economic problems in the country. This study quantifies the effects of uncertainty on the Turkish economy through an SVAR model estimated with Bayesian techniques. The results show that high uncertainty has a negative and significant effect on economic activities, mainly with the decrease in consumption and investment expenditures. The Central Bank of the Republic of Turkey reacts to these developments with an expansionary monetary policy that injects liquidity into the economy. However, it should not be overlooked that such a policy has limitations due to its long-term negative effects.DOI: http://dx.doi.org/10.51505/ijebmr.2022.6704
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