IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v39y2007i16p2011-2026.html
   My bibliography  Save this article

Inflation targeting supported by managed exchange rate

Author

Listed:
  • Hakan Yilmazkuday

Abstract

We compare, on a welfare loss basis, possible inflation targeting regimes supported by different exchange rate rules. For model parametrization, we estimate a forward looking monetary policy rule for Trukey. When variable inflation targets are taken into consideration, as opposed to the fixed targets used in prior research that use data from developed countries, forward looking Taylor rules provide a reasonable description of Central Bank behaviour in Turkey. By applying a calibration based on estimated parameters, we compare the loss functions under flexible inflation targeting and strict inflation targeting while taking into consideration the supporting regimes, namely a flexible exchange rate and a managed floating exchange rate. We find that the welfare loss function caused by four simultaneous shocks, namely a foreign interest rate shock, a monetary policy shock, a foreign output shock and a domestic output shock, is minimized under the flexible inflation targeting regime supported by a managed floating exchange rate rule.

Suggested Citation

  • Hakan Yilmazkuday, 2007. "Inflation targeting supported by managed exchange rate," Applied Economics, Taylor & Francis Journals, vol. 39(16), pages 2011-2026.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:16:p:2011-2026
    DOI: 10.1080/00036840600707068
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840600707068
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036840600707068?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Annina Kaltenbrunner & Juan Pablo Painceira, 2017. "The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies," Development and Change, International Institute of Social Studies, vol. 48(3), pages 452-480, May.
    2. Hakan Yilmazkuday, 2013. "Inflation targeting, flexible exchange rates and inflation convergence," Applied Economics, Taylor & Francis Journals, vol. 45(5), pages 593-603, February.
    3. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Post-Print halshs-00881359, HAL.
    4. Hakan, Yilmazkuday, 2009. "Is there a Role for International Trade Costs in Explaining the Central Bank Behavior?," MPRA Paper 15951, University Library of Munich, Germany.
    5. Hakan Yilmazkuday & M. Ege Yazgan, 2009. "Effects of credit and debit cards on the currency demand," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2115-2123.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Post-Print halshs-00881359, HAL.
    2. Berganza, Juan Carlos & Broto, Carmen, 2012. "Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 428-444.
    3. McKnight, Stephen & Mihailov, Alexander & Rumler, Fabio, 2020. "Inflation forecasting using the New Keynesian Phillips Curve with a time-varying trend," Economic Modelling, Elsevier, vol. 87(C), pages 383-393.
    4. Yazgan M. Ege & Yilmazkuday Hakan, 2005. "Inflation Dynamics of Turkey: A Structural Estimation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-15, March.
    5. Giray Gozgor, 2012. "Inflation Targeting and Monetary Policy Rules: Further Evidence from the Case of Turkey," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(5), pages 1-7.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yazgan M. Ege & Yilmazkuday Hakan, 2005. "Inflation Dynamics of Turkey: A Structural Estimation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-15, March.
    2. Lilian Muchimba & Alexis Stenfors, 2021. "Beyond LIBOR: Money Markets and the Illusion of Representativeness," Journal of Economic Issues, Taylor & Francis Journals, vol. 55(2), pages 565-573, April.
    3. Karsten Kohler & Engelbert Stockhammer, 2023. "Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 551-572.
    4. Hakan Yilmazkuday, 2011. "Oil Shocks through International Transport Costs: Evidence from U.S. Business Cycles," Working Papers 1105, Florida International University, Department of Economics.
    5. Yu Hsing, 2020. "A Simultaneous-Equation Model of Estimating the Response of the Consumer Price to Exchange Rate Movements in Thailand," Business and Economic Research, Macrothink Institute, vol. 10(1), pages 284-293, March.
    6. Arestis, Philip & Chortareas, Georgios & Magkonis, Georgios & Moschos, Demetrios, 2014. "Inflation targeting and inflation convergence: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 285-295.
    7. Andrea Mercatanti & Fan Li, 2017. "Do debit cards decrease cash demand?: causal inference and sensitivity analysis using principal stratification," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 66(4), pages 759-776, August.
    8. Yilmazkuday, Hakan & Akay, Koray, 2008. "An analysis of regime shifts in the Turkish economy," Economic Modelling, Elsevier, vol. 25(5), pages 885-898, September.
    9. Mehmet Ulug & Sayım Işık & Mehmet Mert, 2023. "The effectiveness of ultra-loose monetary policy in a high inflation economy: a time-varying causality analysis for Turkey," Economic Change and Restructuring, Springer, vol. 56(4), pages 2855-2887, August.
    10. Giray GOZGOR, 2013. "Unemployment Persistence and Inflation Convergence: Evidence from Regions of Turkey," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 55-64.
    11. Yilmazkuday, Hakan, 2011. "Monetary policy and credit cards: Evidence from a small open economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 201-210, January.
    12. Yilmazkuday, Hakan, 2012. "Business cycles through international shocks: A structural investigation," Economics Letters, Elsevier, vol. 115(3), pages 329-333.
    13. Filiz Yesilyurt & J. Elhorst, 2014. "A regional analysis of inflation dynamics in Turkey," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 1-17, January.
    14. Eli Direye & Tarron Khemraj, 2022. "Central bank securities and foreign exchange market intervention in a developing economy," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 280-297, February.
    15. Pablo Gabriel Bortz & Nicole Toftum & Nicolás Hernán Zeolla, 2021. "Old Cycles and New Vulnerabilities: Financial Deregulation and the Argentine Crisis," Development and Change, International Institute of Social Studies, vol. 52(3), pages 598-626, May.
    16. Alejandro C. García-Cintado & Diego Romero-Ávila & Carlos Usabiaga, 2016. "The economic integration of Spain: a change in the inflation pattern," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 25(1), pages 1-41, December.
    17. Paweł Gajewski, 2017. "Sources of Regional Inflation in Poland," Eastern European Economics, Taylor & Francis Journals, vol. 55(3), pages 261-276, May.
    18. Elena Deryugina & Natalia Karlova & Alexey Ponomarenko & Anna Tsvetkova, 2019. "The role of regional and sectoral factors in Russian inflation developments," Economic Change and Restructuring, Springer, vol. 52(4), pages 453-474, November.
    19. David, Bounie & Abel, François & Patrick, Waelbroeck, 2016. "Debit card and demand for cash," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 55-66.
    20. Arvind Agrawal & James W. Gentry, 2020. "Why do many consumers prefer to pay now when they could pay later?," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(2), pages 607-627, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:39:y:2007:i:16:p:2011-2026. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.