IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Inflation Targeting, Policy Rates and Exchange Rate Volatility: Evidence from Turkey

Listed author(s):
  • Cem Akyurek


    (Istanbul, Turkey.)

  • Ali M Kutan


    (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA.)

In January 2002, the Central Bank of Turkey (CBT) moved to an implicit inflation targeting framework, which included core attributes of an inflation targeting (IT) regime including, among other requirements, the announcement of a formal target for inflation. As a result of successful disinflation, prudent fiscal policy and implementation of reforms, Turkey introduced a full-fledged IT regime in 2006, which brought further transparency to the monetary policy framework. We found that during 2002–2006, among other factors, the developments in Turkey's risk premium played a very significant role in the path of policy rates. We arrived at this conclusion by estimating a Taylor rule describing the policy reaction function of the CBT. During this period exchange rate pass-through to inflation declined, and while capital inflows strengthened the real exchange rate, the nominal exchange rate and the financial markets in general were affected by occasional reversal of capital inflows. We offer a short discussion of CBT reaction to sudden stop episodes under the new monetary regime. Particularly, we ask whether the sharp increase in policy rates in response to the mid-2006 episode was a defense of the currency instead of adherence to an open economy IT regime. We also discuss whether softening of the targeted disinflation path may have been a viable option. Comparative Economic Studies (2008) 50, 460–493. doi:10.1057/ces.2008.23

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

File URL:
File Function: Link to full text HTML
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Palgrave Macmillan & Association for Comparative Economic Studies in its journal Comparative Economic Studies.

Volume (Year): 50 (2008)
Issue (Month): 3 (September)
Pages: 460-493

in new window

Handle: RePEc:pal:compes:v:50:y:2008:i:3:p:460-493
Contact details of provider: Web page:

Web page:

More information through EDIRC

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pal:compes:v:50:y:2008:i:3:p:460-493. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

or (Rebekah McClure)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.