Turkey’s monetary policy shows inertia, regime shifts, and Taylor rule breach

This study estimates Turkey’s monetary policy reaction function over 2005–2025 using quarterly data and a suite of OLS, ARDL, and ECM specifications. The results reveal pronounced interest-rate smoothing and a sub-Taylor inflation semi-elasticity, while output gaps, unemployment indicators, and real exchange rate pressures contribute little explanatory power once persistence is controlled. Rolling regressions uncover regime dependence. Responsiveness was moderate under early inflation targeting, strengthened during the 2018 crisis tightening, collapsed under the post-2021 heterodox easing, and has only partially recovered with the return to orthodoxy after mid-2023. Formal stability diagnostics, including CUSUM, Quandt–Andrews, Chow, and Bai–Perron procedures, locate structural breaks clustered around 2018 and 2021, delineating three regimes: pre-2018 experimentation, crisis-induced orthodoxy from 2018 to 2021, and post-2021 heterodoxy. Across specifications, the long-run response to inflation remains below one for one and the speed of error correction is slow, implying weak tethering to a rule-like anchor. Policy implications are direct. Durable disinflation requires a transparent reaction function with more than unit inflation pass-through, faster adjustment, and institutional commitments that prevent episodic reversals and rebuild credibility.