Effects of Central Bank's Announcements on Financial Markets

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2022-12-19

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Hanikaz, Buğrahan

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It has been stated in various studies that the Central Bank's announcements do not only affect the short-term interest rates, but also the long-term interest rates through different channels. In this study the effect of the decision of the Central Bank of Turkey on financial markets were examined via VAR with functional shocks method proposed by Inoue and Rossi (2018) . High frequency identification method was adopted to reduce the identification problem in the VAR model, impulse response functions were obtained via local projections. Two more similar VAR models were created to compare the model results. As a result of the study, monetary policy statements rarely have significant effects on the stock market in first few days, similarly, the effects on the exchange rate and implied volatility are generally insignificant, but significant results can be obtained regarding the effects on CDS. It has been observed that mostly unexpected interest rate hikes have a downward effect on CDS, while interest rate decreases have an upward effect. The effects on other financial variables cannot be interpreted as clearly as in CDS. With the established model, the short-term effects of the Central Bank's decisions on the financial markets in Turkey could only be examined for a few days, apart from the effects on first few days, some delayed effects were also observed.

Subject Keywords

Central Bank, Monetary Policy Shock, Vector Autoregression Models, Yield Curve

URI

https://hdl.handle.net/11511/101167

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Graduate School of Applied Mathematics, Thesis

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Citation Formats

B. Hanikaz, “Effects of Central Bank’s Announcements on Financial Markets,” M.S. - Master of Science, Middle East Technical University, 2022.