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Turkish Experience With Implicit Inflation Targeting

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  • A. Hakan Kara

Abstract

This paper describes the challenges faced during the implementation of implicit inflation targeting in Turkey and evaluates the transition process to full-fledged inflation targeting. Using this background, the paper draws lessons for similar countries considering inflation targeting as a monetary policy regime. We argue that, the strategy of starting inflation targeting with an "implicit" version and gradually converging to full-fledged targeting can be a viable option when certain set of conditions is not satisfied. We conjecture, however, that implementing a "light" version?namely implicit inflation targeting?does not necessarily mean that the system would be exempt from all the prerequisites. In the Turkish case, for example, institutional independence and political support seem to have been the fundamental conditions for initiating the process of inflation targeting.

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File URL: http://www.tcmb.gov.tr/research/cbreview/jan08-1.pdf
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Bibliographic Info

Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages: 1-16

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Handle: RePEc:tcb:cebare:v:8:y:2008:i:1:p:1-16

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Keywords: Implicit inflation targeting; Price stability; Turkey;

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References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  2. Zelal Aktas & Neslihan Kaya & Umit Ozlale, 2005. "The Price Puzzle in Emerging Markets : Evidence from the Turkish Economy Using Model Based Risk Premium Derived from Domestic Fundamentals," Working Papers 0502, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Olcay Yucel Emir & Fatih Ozatay & Gulbin Sahinbeyoglu, 2005. "Effects of US Interest Rates and News on the Daily Interest Rates of a Highly Indebted Emerging Country : Evidence from Turkey," Working Papers 0508, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
  5. Fatih Ozatay, 2005. "Monetary Policy Challenges for Turkey in European Union Accession Process," Working Papers 0511, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Gaston Gelos & Alessandro Prati & Oya Celasun, 2004. "Obstacles to Disinflation: What is the Role of Fiscal Expectations?," IMF Working Papers 04/111, International Monetary Fund.
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Citations

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Cited by:
  1. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers 2013/11, Turkish Economic Association.
  2. Zeren, Fatma & Korap, Levent, 2010. "A cost-based empirical model of the aggregate price determination for the Turkish economy: a multivariate cointegration approach," MPRA Paper 23655, University Library of Munich, Germany.
  3. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," ERC Working Papers 1308, ERC - Economic Research Center, Middle East Technical University, revised Dec 2013.
  4. Alper, Emre & Hatipoglu, Ozan, 2009. "The Conduct of Monetary Policy in Turkey in the Pre- and Post-crisis Period of 2001 in Comparative Perspective: a Case for Central Bank Independence," MPRA Paper 18426, University Library of Munich, Germany.
  5. Levent, Korap, 2009. "Parasal büyüme ve tüketici enflasyonu değişim oranı arasındaki nedensellik ilişkisi üzerine bir deneme: Türkiye örneği
    [An essay upon the causality relationship between the monetary gro
    ," MPRA Paper 19537, University Library of Munich, Germany.
  6. Harun Alp & Yusuf Soner Baskaya & Mustafa Kilinc & Canan Yuksel, 2012. "Stylized Facts for Business Cycles in Turkey," Working Papers 1202, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  7. Demiralp, Selva & Kara, Hakan & Özlü, Pınar, 2012. "Monetary policy communication in Turkey," European Journal of Political Economy, Elsevier, vol. 28(4), pages 540-556.
  8. Yilmazkuday, Hakan, 2011. "Monetary policy and credit cards: Evidence from a small open economy," Economic Modelling, Elsevier, vol. 28(1), pages 201-210.
  9. Kose, Nezir & Emirmahmutoglu, Furkan & Aksoy, Sezgin, 2012. "The interest rate–inflation relationship under an inflation targeting regime: The case of Turkey," Journal of Asian Economics, Elsevier, vol. 23(4), pages 476-485.
  10. Selva Demiralp & Hakan Kara & Pýnar Özlü, 2011. "Monetary policy communication under inflation targeting: Do words speak louder than actions?," Koç University-TUSIAD Economic Research Forum Working Papers 1128, Koc University-TUSIAD Economic Research Forum.
  11. Cem Cebi, 2011. "The Interaction between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model (Yeni Keynesyen Dinamik Stokastik Genel Denge Modeli Çerçevesinde Türkiye’de Para ve Maliye P," Working Papers 1104, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  12. International Monetary Fund, 2007. "A Simple DGE Model for Inflation Targeting," IMF Working Papers 07/197, International Monetary Fund.
  13. Çebi, Cem, 2012. "The interaction between monetary and fiscal policies in Turkey: An estimated New Keynesian DSGE model," Economic Modelling, Elsevier, vol. 29(4), pages 1258-1267.
  14. Akyurek, Cem & Kutan, Ali M. & Yilmazkuday, Hakan, 2011. "Can inflation targeting regimes be effective in developing countries? The Turkish experience," Journal of Asian Economics, Elsevier, vol. 22(5), pages 343-355, October.
  15. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers wp333, Political Economy Research Institute, University of Massachusetts at Amherst.

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