Özet:

The Central Bank of the Republic of Turkey (CBRT), which adopted an inflation targeting strategy in 2006, has thus far typically missed the inflation target. Therefore, this paper focuses on the monetary policy reaction function of the CBRT to detect the economic indicators that the CBRT considers while it is adjusting short-term interest rates. Put differently, the goal of this paper is to estimate a forward-looking monetary policy reaction function for the CBRT. To that end, the paper uses monthly data over the period 2006:1-2019:5. Differing from the previous papers in the empirical literature, this paper considers recent developments in time series analysis and employs time series methods based on the Fourier approximation to capture structural breaks. These methods are capable of presenting efficient and unbiased results in the presence of both sharp and gradual breaks. The findings indicate that the CBRT considers only inflation while it is steering short-term interest rates.

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