The Turkish Experience in Inflation Targeting: Uncertainties and the Efficiency of Monetary Policy

<< N°116

	N°116
	Issue 4Q 2008
	The Turkish Experience in Inflation Targeting: Uncertainties and the Efficiency of Monetary Policy
	Z. Yesim Gürbüz Thomas Jobert Ruhi Tuncer
	In January 2002, Turkey adopted implicit inflation targeting as monetary policy. The short-term interest rate of the Central Bank of the Republic of Turkey would serve as instrument and should influence the secondary market interest rate. Using a Vector Error Correction Model, we analyze the joint dynamics of these two rates. We show that the political or geopolitical uncertainties of the 2002 and 2003 (early elections, discussions on the opening of negotiations to joint the European Union and conflict in Iraq) have not affected the dynamics of the two rates. However, there has been a structural change in their long term dynamics at the end of 2004 because of the opening of negotiation Turkey to join the European Union. This event has temporarily reinforced the efficiency of the monetary policy.	Abstract

	INTEREST RATE ; MONETARY POLICY ; Inflation Targeting ; Structural Change ; VECM ;	Keywords
	C32 ; E52 ; E58 ;	JEL classification
		Order form