Monetary Policy and Output – Inflation Tradeoff: The Turkish Case

International Journal of Economics and Management Studies

© 2019 by SSRG - IJEMS Journal

Volume 6 Issue 11

Year of Publication : 2019

Authors : Ilyas Siklar

10.14445/23939125/IJEMS-V6I11P103

How to Cite?

Ilyas Siklar, "Monetary Policy and Output – Inflation Tradeoff: The Turkish Case," SSRG International Journal of Economics and Management Studies, vol. 6,  no. 11, pp. 17-28, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I11P103

Abstract:

This study analyses the policy tradeoff between inflation and output volatilities which also known as Taylor curve. Beside obtaining and evaluating Taylor curve phenomenon, we also assess whether there was a change in its position during analyzing period, how temporary economic shocks influence the volatilities ofprice increases and production changes and the extent to which monetary authorities’ decisions affect policy optimality. To this end, current study uses multivariate GARCH methodology as the basic model estimation technique. The results obtained indicate that Taylor curve demonstrates some important inward and outward movements during the period under investigation. Compared with the previous monetary policy regimes applied in Turkey, Taylor curves moves toward origin during the inflation targeting period. Estimation results also refer the fact that economic growth performance of the economy is stronger when the relationship that Taylor curve demonstrates is prevailing. Aggregate supply and demand shocks create interim impacts on conditional variances of inflation and output deviations targeted or potential levels. The results outlined above indicate in the context of monetary policy that the movement of the Taylor curve and empirical results emerging from Taylor principle together show the efficiency of the monetary policy after the inflation targeting monetary policy setting.

Keywords:

Inflation volatility, Output volatility, Taylor rule, Monetary policy

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