Impact of inflatıon gap to nomınal interest rates: case of Turkey
The objective of this paper is to examine the impact of inflation gap from target, deviation from targeted inflation, to nominal interest rate decision of Central Bank of Republic of Turkey (CBRT) in Turkey. Recently, ıt is discussed whether inflation target (IT) regime is the only method to achieve price stability goal or not in Turkey. Becasue the average inflation rate in Turkey during 1980-2002 is over 70 percent, Turkey has not become a potential candidate for IT regime. CBRT has begun to implement IT regime explicitly as late as after january 2006, when the country could able to reduce its inflation rate below 30 percent between 2002 and 2005. We apply unrestricted standard Vector Autoregressive (VAR) technique to series between 2002-2011, because it is known that CBRT has implemented IT implicitly betwen 2002-2005 and explicitly after 2006. Empirical findings indicates that the impact of inflation gap, deviated from targeted inflation, to nominal interest rate is insignificant. Therefore, we suggest that CBRT has implemented its implicit and explicit inflation targeting regime by discretionary measures not by policy rules during 2002-2011. This paper also finds that output gap is negatively and significantly related to the inflastion gap. If CBRT deviates 1 unit from its inflation target level, the logarithmic difference of output gap reduces 0.004.
|Date of creation:||21 Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svensson, L.E.O., 1998.
"Open-Economy Inflation Targeting,"
638, Stockholm - International Economic Studies.
- Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
- Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
- Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
- Guender, Alfred V., 2003. "Optimal monetary policy under inflation targeting based on an instrument rule," Economics Letters, Elsevier, vol. 78(1), pages 55-58, January.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40472. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.