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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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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. 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.
  2. Oya Celasun & R. Gaston Gelos & Alessandro Prati, 2004. "Obstacles to disinflation: what is the role of fiscal expectations?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 19(40), pages 441-481, October.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
  4. Gaston Gelos & Alessandro Prati & Oya Celasun, 2004. "Obstacles to Disinflation," IMF Working Papers 04/111, International Monetary Fund.
  5. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
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Citations

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Cited by:
  1. 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.
  2. Demiralp, Selva & Kara, Hakan & Özlü, Pınar, 2012. "Monetary policy communication in Turkey," European Journal of Political Economy, Elsevier, Elsevier, vol. 28(4), pages 540-556.
  3. 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.
  4. Hakan Yilmazkuday, 2010. "Monetary Policy and Credit Cards: Evidence from a Small-Open Economy," DETU Working Papers, Department of Economics, Temple University 1010, Department of Economics, Temple University.
  5. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers, Turkish Economic Association 2013/11, Turkish Economic Association.
  6. Çebi, Cem, 2012. "The interaction between monetary and fiscal policies in Turkey: An estimated New Keynesian DSGE model," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1258-1267.
  7. 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, Elsevier, vol. 22(5), pages 343-355, October.
  8. Selva Demiralp & Hakan Kara & Pinar Ozlu, 2011. "Monetary Policy Communication Under Inflation Targeting : Do Words Speak Louder Than Actions?," Working Papers 1118, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  9. Levent Korap, 2009. "Parasal Buyume ve Tuketici Enflasyonu Degisim Orani Arasindaki Nedensellik Iliskisi Uzerine Bir Deneme: Turkiye Ornegi," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 9(1), pages 56-74, May.
  10. 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.
  11. Gonul Sengul & Murat Tasci, 2014. "Unemployment Flows, Participation and the Natural Rate for Turkey," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1404, Koc University-TUSIAD Economic Research Forum.
  12. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
  13. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp333, Political Economy Research Institute, University of Massachusetts at Amherst.
  14. 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, Elsevier, vol. 23(4), pages 476-485.
  15. International Monetary Fund, 2007. "A Simple Dge Model for Inflation Targeting," IMF Working Papers 07/197, International Monetary Fund.
  16. 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.
  17. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," ERC Working Papers, ERC - Economic Research Center, Middle East Technical University 1308, ERC - Economic Research Center, Middle East Technical University, revised Dec 2013.
  18. Sumru Altug & Cem Cakmakli, 2014. "Inflation Targeting and Inflation Expectations: Evidence for Brazil and Turkey," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1413, Koc University-TUSIAD Economic Research Forum.

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