Monetary Policy and Turkey’s Stock Market: A New Insight Form Combined Cointegration Test

The main goal of this study is to see how monetary policy, which is dictated by exchange rates, interest rates, money supply, and consumer prices, affects Turkey's stock market from 1993Q4 to 2016Q4, a time that includes two economic crises. The Pesaran's ARDL Bounds and Gregory Hansen cointegration measures are used to determine if the variables are cointegrated. In addition, the results of Pesaran's ARDL test are supported by a recent Bayer and Hanck [1] combined cointegration method. The ARDL, DOLS, FMOLS, and CCR estimation models are used to measure the coefficient in the long run.The results from the estimation models show that there is a significant impact of monetary policy on stock prices in the short and long run. The results indicate that there is a positive and statistically significant relationship between consumer prices, money supply, and stock prices. Furthermore, the results suggest that currency appreciation leads to increases in stock prices. Also, the results indicate that there is a negative and statistically significant relationship between the interest rates and stock prices. Finally, the results show that the 2001 and 2008 crises had an inverse impact on stock prices in Turkey. It is suggested that policymakers in Turkey should endeavor to promote credit accessibility and investment in the markets by reducing the interest rate, and inflation rate fluctuations to make market stability.

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