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An Analysis of Time Inconsistency in Turkey with ARDL Method

Bora Suslu and Selahattin Bekmez

Journal of BRSA Banking and Financial Markets, 2010, vol. 4, issue 2, 85-110

Abstract: Since two main principles of the monetary policy are credibility and transparency, central banks aim to develop long-run policies. However, contemporary monetary policy approach requires that central banks are responsible for developing short-run stability policies as well. Within this context, central banks find themselves in a trade-off between short-run and longrun policy developments. Because of this trade off time inconsistency reveals. In this article, we investigate if TCMB’s monetary policy after 2001 creates time inconsistency by using ARDL method. The findings indicate that TCMB’s monetary policy didn’t create time inconsistent results. Findings also showed that economic agents have rational expectations.

Keywords: Time Inconsistency; Monetary Policy; ARDL Method (search for similar items in EconPapers)
JEL-codes: E40 E52 C22 (search for similar items in EconPapers)
Date: 2010
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Handle: RePEc:bdd:journl:v:4:y:2010:i:2:p:85-110