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Augmented Taylor Rule Analysis for Turkish Economy: ARDL Bound Test

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  • Erol BULUT
  • Ä°brahim TOKATLIOÄžLU

Abstract

Inflation targeting is one of the most preferred policies in the fight against inflation. One of the most popular tools of this policy is nominal interest rate which named policy rate. The ability of central banks to determine nominal interest rates according to developments in inflation is the key issue. The main debate in this policy is at what level central banks will set nominal interest rates. For this, Taylor (1993) developed a very useful and generally accepted rule in his study. According to this rule, the difference between the current inflation and the targeted inflation and the difference between the current and potential growth determine the change of the nominal interest rate. In this study, the augmented Taylor rule was tried to be estimated by ARDL Bounds Test and Rolling Windows Method during between January 2003 and October 2021 for Turkey. According to the results obtained, while the augmented Taylor rule worked effectively in Turkey until the 2008 global crisis period, the stability of the Taylor rule seems to have deteriorated during and after the crisis.

Suggested Citation

  • Erol BULUT & Ä°brahim TOKATLIOÄžLU, 2022. "Augmented Taylor Rule Analysis for Turkish Economy: ARDL Bound Test," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 3.
    • Handle: RePEc:fis:journl:220302
    DOI: 10.25295/fsecon.1063913
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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