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2019•Anemon Muş Alparslan Üniversitesi Sosyal Bilimler DergisiOpen access

Testing The Taylor Rule: The Case of Turkey

Merve Narta, Ismaіl Çeviş, Nihal Yayla

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Abstract

The aim of this study is to test whether the TCMB makes interest rate decisions in accordance with Taylor Rule by using ARDL method with monthly data for 2005: 1-2019: 1 period. The results show that the Central Bank of the Republic of Turkey has taken policy interest rate decisions both in terms of the output gap and the inflation gap in the long term, but the policy interest rate decision is stronger in relation to the inflation gap. In the short term, there was only a relationship between the inflation gap and the output gap. As a result, the TCMB has decided on both price stability and output stability in the long run, while focusing only on price stability in the short run.

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What this paper is about

The aim of this study is to test whether the TCMB makes interest rate decisions in accordance with Taylor Rule by using ARDL method with monthly data for 2005: 1-2019: 1 period. The results show that the Central Bank of the Republic of Turkey has taken policy interest rate decisions both in terms of the output gap and the inflation gap in the long term, but the policy interest rate decision is stronger in relation to the inflation gap. In the short term, there was only a relationship between the inflation gap and the output gap. As a result, the TCMB has decided on both price stability and output stability in the long run, while focusing only on price stability in the short run.

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Available abstract

The aim of this study is to test whether the TCMB makes interest rate decisions in accordance with Taylor Rule by using ARDL method with monthly data for 2005: 1-2019: 1 period. The results show that the Central Bank of the Republic of Turkey has taken policy interest rate decisions both in terms of the output gap and the inflation gap in the long term, but the policy interest rate decision is stronger in relation to the inflation gap. In the short term, there was only a relationship between the inflation gap and the output gap. As a result, the TCMB has decided on both price stability and output stability in the long run, while focusing only on price stability in the short run.

Key concepts: Output gap, Taylor rule, Economics, Inflation (cosmology), Price of stability, Interest rate, Monetary policy, Inflation rate

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