Abstract:

Taylor suggests that central banks should modify their short-term lending rates based on the disparities between the current and potential gross domestic product, as well as the differences between current and target inflation rates. This strategy, known as the Taylor Rule, aims to establish uniformity in the actions of central banks, safeguarding economic establishments against the burdens of uncertainty. While intricate policy regulations crafted by monetary authorities might be theoretically optimal, they tend to be burdensome for economic agents to adhere to. Conversely, the straightforward Taylor Rule is more comprehensible and implementable. Unlike the original version proposed in 1993, this approach has been expanded to encompass the influence of exchange rates. In conclusion, this research investigates the practicality of the extended Taylor Rule in the context of Türkiye, utilizing diverse datasets that contribute to the extended model. The study explores the viability of applying the extended Taylor Rule to Türkiye using annual data spanning from 1990 to 2022. To achieve this, tests for stationarity, cointegration, and long-run coefficients were conducted, with considerations for potential structural breaks. The results of the tests reveal that the policy interest rates in Türkiye do not align with the expectations outlined in the extended Taylor Rule.

Keywords: