Examination of the exchange rate and interest rate channels of the monetary transmission mechanism during the inflation targeting: Turkey and Mexico countries examples

In this paper, the efficiency of the exchange rate and interest rate channels were investigated of the monetary transmission mechanism (MTM) in Turkey and Mexico. Quarterly data are used for Turkey 2002I – 2013II period and for Mexico 2001I – 2013I period were analysed for both Countries using the VAR (Vector Autoregressive) and FAVAR (Factor Augmented Vector Autoregressive) econometric methods. Obtained the findings in this paper namely, VAR Model results impulse-response functions showed that partially work of the interest rate channel in Turkey and of the exchange rate channel in Mexico. FAVAR Model impulseresponse functions results have pointed out that did not work for both Countries of the exchange rate and interest rate channels.