International Business Cycle Spillover Effects and Counter-Cyclical Monetary Policy

In the first phase of this study the international spillover of economic fluctuations is investigated by Diebold and Yilmaz (2009) Spillover Index method. In the second stage of the study, the state asymmetry of the monetary policy has been tested by Markov Regime Switching method. According to the Spillover Index findings, 48% of economic shocks affecting the Turkey caused by external shocks. The economic fluctuations that occurred in Turkey are originated 12,5% from South Korea, 8.4% from US, 6.4% from Japan, 4.5% from Greece and 3.2% from the Spanish Economy. According to these results, the economic conditions of these countries are leading indicators for the Turkish Economy. Markov Regime Switching model findings show that Turkish Economy grows 1.82% on an average in the expansion, shrinks 3.38% on an average in the contraction and an increase in the exchange rate slows the economic growth in Turkey. Finally obtained econometric evidence shows that CBRT can bring real effect in expansion regime but not create real impact in the fight against recession.