Inflation targeting and the exchange rate: Does it matter in Turkey?

İrfan Civcir and AnIl Akçaglayan

Journal of Policy Modeling, 2010, vol. 32, issue 3, 339-354

Abstract: This paper investigates the monetary policy reaction functions of the Central Bank of Republic of Turkey (CBRT) over the periods 1987:01-2001:12 and 2002:01-2009:05. We specifically attempt to shed light on question to what extent exchange rate developments still continue to influence monetary policy, even under inflation targeting. This study seeks to investigate how the monetary policy responded to the exchange rate shocks before and after adoption of inflation targeting regime. How large the effect of exchange rate shocks is accounted for in forecast error variances decompositions for monetary policy as compared to other shocks? Using the VAR model, this study shows that there has been strong pass-through during whole period. Moreover, in the postcrisis period, exchange rate has been the main reaction variable for the CBRT.

Keywords: Inflation; targeting; Exchange; rates; Taylor; rule; Turkey; Monetary; policy; Reaction; function (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:32:y::i:3:p:339-354

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