Abstract:

In this study, the monetary policy implemented in Turkey in the period 2002-2007 was empirically analyzed. For this, the monetary policy reaction function for the period January 2002–December 2007 was predicted. The reaction function and the monetary policy’s reactions to inflation, output gap and exchange rate have been measured during this period. The results of the analysis have found that monetary policy strongly responded to the expected inflation deviation from the target. The result was that the monetary policy did not respond to the output gap. Analysis using four separate currency exchanges showed that monetary policy did not respond to the currency exchange rate during the study period.