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Does Time Inconsistency Problem Apply For Turkish Monetary Policy?

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  • Ümit Özlale

    (Bilkent University)

  • Kivilcim Metin Ozcan

    (Bilkent University)

Abstract

We analyze the implications of the time inconsistency problem for the Turkish monetary policy in the last two decades. After deriving the restrictions that the Barro and Gordon model imposes on a time series model for inflation and output, we show that the time inconsistency problem can explain both the short-run and the long-run behaviour of inflation and output in the Turkish economy. The results also reveal that the Turkish monetary policymakers have put more emphasis on output stability than price stability in the last decade.

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File URL: http://www.tek.org.tr/dosyalar/U-OZLALE-K-M-OZCAN.pdf
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Bibliographic Info

Paper provided by Turkish Economic Association in its series Working Papers with number 2005/2.

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Length: 32 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:tek:wpaper:2005/2

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Keywords: Inflation; Turkish Economy; Time Inconsistency; Kalman Filter;

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References

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  1. Ireland, Peter N., 1999. "Does the time-consistency problem explain the behavior of inflation in the United States?," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 279-291, October.
  2. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  3. Aykut Kibritcioglu, 2001. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," Economics Bulletin, AccessEcon, vol. 28(21), pages A0.
  4. Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999. "Persistence in International Inflation Rates," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 900-913, April.
  5. Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
  6. Erinç Yeldan & Ümit Cizre-Sakallýoðlu, 1999. "Dynamics of Macroeconomic Disequilibrium and Inflation in Turkey : The State, Politics, and the Marketsunder a Globalized Developing Economy," Departmental Working Papers 9910, Bilkent University, Department of Economics.
  7. Metin, Kivilcim, 1998. "The Relationship between Inflation and the Budget Deficit in Turkey," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 412-22, October.
  8. Hakan Berument, 1997. "Financing divided governments," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 369-372.
  9. Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, July.
  10. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393, September.
  11. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  12. Erol, Turan & Van Wijnbergen, Sweder, 1997. "Real exchange rate targeting and inflation in Turkey: An empirical analysis with policy credibility," World Development, Elsevier, vol. 25(10), pages 1717-1730, October.
  13. Pierre-Richard Agénor & Alexander W. Hoffmaister, 1997. "Money, Wages and Inflation in Middle-Income Developing Countries," IMF Working Papers 97/174, International Monetary Fund.
  14. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  17. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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