Alternative Monetary Policy Rules in the Turkish Economy Under an Inflation-Targeting Framework

Vuslat Us ()

Emerging Markets Finance and Trade, 2007, vol. 43, issue 2, 82-101

Abstract: This study analyzes alternative monetary-policy rules in Turkey under inflation targeting (IT) using a small-scale structural macroeconomic model. The alternatives are the Taylor rule, the monetary conditions index (MCI) rule under strict IT, and the MCI rule under flexible IT. Using the MCI rule under strict IT produces slightly better results than under flexible IT and, thus, is preferable. The results also indicate that the economy stabilizes much more quickly, and shows significantly less volatility, in the second alternative. Following the Taylor rule should definitely be avoided. However, in open economies, ignoring exchange rates when setting inflation targets is certainly not an optimal solution.

Keywords: inflation targeting; macroeconomic model; MCI rule; monetary-policy rule; Taylor rule (search for similar items in EconPapers)
Date: 2007
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