Taylor's Rule Within the Framework of Rule-Based-Opinal Policy Discussions: An Application Specific to the CBRT

Abstract

ABSTRACT
 In this study, basde on the rule-based and discretioary monetary policy discussions, the relationship of monetarty policy with the inflation gap, production gap and exchange rate gap variables in Turkey was tried to be determined within the scope of Taylor’s Rule, based on the period 2006-2021. The ARDL Boundary test model has been examined how short-term interest rates follow when there are deviations from the said variables. In the first model of the analysis based on two models, the tradional Taylor Rule, and in the second model, the extended Taylor Rule including the exchange rate was examined; fort he first model, no significant relationship was found between interest rates and production gap, while a negative relationship was found between inflation gap and interest rates.This finding is that the CBRT does not consider price stability in the policy rate. In the second model, in which the exchange rate is also included in the analysis, there is a positive and statistically significant relationshio between the policy rate and the production gap; a negative and statically relationship was found between the policy rate and the exchange rate gap. It has been concluded that the CBRT takes into account the production and exchnge rate variables while determining the policy rate.