Augmented Taylor rule analysis: the case of Türkiye

Abstract

It might be said that the inflation targeting strategy is one of the most common strategies used to combat inflation, which is one of the most important economic problems experienced in global economies in the recent period. In the inflation targeting strategy, which is one of the most effective methods in solving the inflation problem, which is a global macroeconomic problem, it is observed that short-term interest rates are used as an intermediate target in the widespread literature in the solution of the inflation problem. In this context, while the "Taylor Rule" can be a strategic indicator of the relevant inflation targeting in the inflation targeting strategy in developed country economies, periods have been observed in which central banks have determined policy and intermediate target strategies based on the "Augmented Taylor Rule" in the inflation targeting strategy in developing country economies. Under the assumption that the Turkish economy is also in the class of developing country economies, the expanded Taylor rule equation in which the exchange rate is included for the Turkish economy was tried to be estimated by Autoregressive Distributed Lag Bound Test (ARDL) method for the period 2003:01-2022:08. According to the results of the analysis, it is seen that the CBRT's interest rate decisions are related to the inflation rate, output level and exchange rate.