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Türkiye için reaksiyon fonksiyonunun doğrusal olmayan modelle tahmin edilmesi
[A nonlinear estimation of monetary policy reaction function for Turkey]

  • Omay, Tolga Omay
  • Hasanov, Mubariz

In this paper we have estimated the monetary reaction function of the Central Bank of Republic of Turkey. The originality of the paper is that we have used smooth transition functions (STR) that allow for proper modelling of nonlinearities and asymmetries in the relationship between variables under consideration. The estimated models suggest that the backward-looking instead of foreward-looking models best characterise the CBRT’s reaction function, that is, the CBRT reacted to past inflation rates rather than to future rates. This finding is in conformity with earlier research. We have found that the main purpose of expansionary policy of the CBRT is to stabilise output whereas contractionary policies aimed only at reducing the inflation rate. The fact that the CBRT has disregarded inflation in conducting expansionary policy and focused only on output stabilisation may explain why the CBRT was not successful in fighting inflation. Besides, neither in expansionary policy regime nor in contractionary policy regime, real exchange rate is not targeted by CBRT. Moreover, budget deficit is targeted only in the contractionary policy regime.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20154.

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Date of creation: 16 Jul 2006
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Handle: RePEc:pra:mprapa:20154
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  1. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
  2. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
  3. Hakan Berument & Hakan Tasci, 2003. "Monetary Policy Rules in Practice : Evidence from Turkey," Departmental Working Papers 0305, .
  4. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  5. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
  6. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-39, March.
  7. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  9. 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.
  10. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  11. Abrams, Richard K & Froyen, Richard & Waud, Roger N, 1980. "Monetary Policy Reaction Functions, Consistent Expectations, and the Burns Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(1), pages 30-42, February.
  12. Dolado, Juan J. & María-Dolores, Ramón & Naveira Barrero, Manuel, 2000. "Asymmetries In Monetary Policy Rules: Evidence For Four Central Banks," CEPR Discussion Papers 2441, C.E.P.R. Discussion Papers.
  13. Olcay Yucel Emir & Almila Karasoy & Kursat Kunter, 2000. "Monetary Policy Reaction Function In Turkey," Discussion Papers 0005, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  14. Bec Frédérique & Ben Salem Mélika & Collard Fabrice, 2002. "Asymmetries in Monetary Policy Reaction Function: Evidence for U.S. French and German Central Banks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(2), pages 1-22, July.
  15. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  16. Chung-Hua Shen & David R. Hakes & Kenneth Brown, 1999. "Time-Varying Response of Monetary Policy to Macroeconomic Conditions," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 584-593, January.
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