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Expectations, Communication and Monetary Policy in Turkey

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  • Yusuf Soner Baskaya
  • Hakan Kara
  • Defne Mutluer

Abstract

This study analyzes the behavioral aspects of inflation expectations in Turkey by utilizing data from a panel of survey respondents, and draws implications for the formulation of monetary policy and communication strategy. Our results lend support to the view that the survey respondents take the inflation targets and the official forecasts of the Central Bank of Turkey into account in forming their expectations. We show that inflation expectations during the rapid disinflation episode of 2002-2005 were firmly anchored by the announced targets. Yet, the weight attached to past inflation and the sensitivity of inflation expectations to variables such as exchange rates and the risk premia seem to have increased in recent years. We also show that there is significant heterogeneity in the expectation formation process. Real sector attaches a greater weight to past inflation than the financial sector, suggesting that more effort should be devoted to communicating quantitative policy objectives to the real sector. Moreover, the financial sector appears to be relatively more sensitive to variations in volatile variables such as exchange rates, risk premium and short-term inflation surprises, implying that communication to financial markets should keep emphasizing the medium-term policy perspective of the monetary policy.

Suggested Citation

  • Yusuf Soner Baskaya & Hakan Kara & Defne Mutluer, 2008. "Expectations, Communication and Monetary Policy in Turkey," Working Papers 0801, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:0801
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    References listed on IDEAS

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    Cited by:

    1. Baris Soybilgen & Ege Yazgan, 2017. "An evaluation of inflation expectations in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 17(1), pages 1-31–38.
    2. Yusuf Soner Baskaya & Eda Gulsen & Musa Orak, 2010. "2008 Hedef Revizyonu Oncesi ve Sonrasinda Enflasyon Beklentileri," CBT Research Notes in Economics 1001, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Çebi, Cem, 2012. "The interaction between monetary and fiscal policies in Turkey: An estimated New Keynesian DSGE model," Economic Modelling, Elsevier, vol. 29(4), pages 1258-1267.
    4. Cem Cebi, 2011. "The Interaction between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model (Yeni Keynesyen Dinamik Stokastik Genel Denge Modeli Çerçevesinde Türkiye’de Para ve Maliye Politi," Working Papers 1104, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. Yusuf Soner Baskaya & Eda Gulsen & A. Hakan Kara, 2012. "Iletisim Politikasi ve Enflasyon Beklentileri," CBT Research Notes in Economics 1214, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    6. Serkan ÇİÇEK & Cüneyt AKAR & Eray YÜCEL, 2011. "Türkiye’de enflasyon beklentilerinin çapalanması ve güvenilirlik," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 26(304), pages 37-55.
    7. Ece Oral, 2016. "Measuring Consumer Inflation Expectations in Turkey," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(1), pages 43-74.
    8. Serkan Cicek & Cuneyt Akar, 2014. "Do Inflation Expectations Converge Toward Inflation Target or Actual Inflation? Evidence from Expectation Gap Persistence," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 14(1), pages 15-21.

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