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Can inflation targeting regimes be effective in developing countries? The Turkish experience

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  • Akyurek, Cem
  • Kutan, Ali M.
  • Yilmazkuday, Hakan

Abstract

This paper examines the performance of Turkey's inflation targeting (IT) experience. We find the IT regime to be an effective framework. Our judgment is based on three broad conclusions supported by empirical analyses. First, fiscal stability is an effective tool for a successful monetary policy. Second, the overnight policy of the Central Bank of Turkey rate is a significant determinant of the changes in market lending rates, which is the preliminary step in the monetary transmission mechanism. Third, recent developments on the broader issue of the effectiveness of interest rate policy in controlling inflation through aggregate demand management and through other channels are encouraging. Based on our findings, we argue that the impact of policy rate changes on economic activity and inflation have become more predictable and changed in the direction in line with theory, improving the transmission capacity of monetary policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 22 (2011)
Issue (Month): 5 (October)
Pages: 343-355

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Handle: RePEc:eee:asieco:v:22:y:2011:i:5:p:343-355

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Inflation targeting Monetary policy Business cycles Taylor rule;

References

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Citations

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Cited by:
  1. Sheikh Khurram Fazal & Muhammad Abdus Salam, 2013. "Interest Rate Pass-Through: Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 39-62, Jan-June.
  2. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  3. Ali, Syed Zahid & Anwar, Sajid, 2013. "Inflation and interest rates in the presence of a cost channel, wealth effect and agent heterogeneity," Economic Modelling, Elsevier, vol. 31(C), pages 286-296.
  4. Kutan, Ali & Ozsoz, Emre & Rengifo, Erick, 2012. "Dynamics of Foreign Currency Lending in Turkey," MPRA Paper 36214, University Library of Munich, Germany.

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