Abstract:

After the transition to flexible exchange rate regime in Turkey the question of how to implement the monetary policy still maintains its importance The transition to inflation targeting as a new monetary policy implementation that is the use of determined inflation target as nominal anchor requires inflation forecasting models with high level credibility in application This study is concerned with putting forth the leading indicator variables of inflation in Turkey After reviewing the prerequisites for transition to inflation targeting a set of indicator variables of inflation are determined by using VAR analysis Whatever the criticisms against the VAR methodology in choosing the VAR analysis various aspects of it played a crucial role such as having no constraints over the structure of the relation presenting dynamic relations and having no difficulty in deciding which variable is internal and which external Due to the prospective feature of the inflation target forward looking variables indicators are emphasized To this end the analysis made should be regarded as a pre model study on the basis of determinant indicators to be enlarged with policy instruments and new inflation series to be developed Keywords: Inflation Inflation targeting VAR Analysis Monetary policy JEL Classification: E3 E42 E52

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