Effectiveness of Expectation Channel of Monetary Transmission Mechanism in Inflation Targeting System: An Empirical Study for Turkey
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Nov 4, 2016
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Abstract
Monetary policy can affect economy through out various transmission mechanisms. One of this transmission mechanisms is expectations channel. The monetary policy can get involved in expectation channel of transmission mechanism by affecting the process of expectations formation. Because the results of policies to be implemented vary according to the expectations, the main challenge in monetary policy is to correctly manage expectations. Because of the fact that only the systematic component of monetary policy (estimated component) can affect forward looking expectations, systematic behavior of the central bank has a critical role in determining the economic consequences of monetary policy. In this study, the effectiveness of expectation channel of transmission mechanism was analyized by VAR model. According the results TCMB cannot affect inflation expectations via both the inflation targets and the policy interest. On the other hand, inflation expectations are affected significantly from actualized inflation rates and exchange rates.
Keywords: Central bank, Expectations, Monetary transmission mechanisms, Monetary policy
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Başkaya, Y. S. et. al. (2012). Inflation Expectations and Central Bank Communication in Turkey. Central Bank Review, 12, 1-10.
Bernanke, B. et al. (1999). Inflation Targeting: Lessons from the International Experience. Princeton University Press.
Bernanke, B. S. & Gertler, M., (1995). Inside the Black Box: The Credit Channel of Monetary Policy Transmission. The Journal of Economic Perspectives, 9, 4, 27-48.
Bernanke, B.S. & Mishkin, F. S. (1992). Central Bank Behavior and the Strategy of Monetary Policy: Observations From Six Industrialized Countries, in “NBER Macroeconomics Annual, Vol. 7” Blanchard, O. J., Fischer, S. (Ed.), MIT Press, 183-238.
Binal Yılmaz, C. (2012). Macroeconomic Factors Determining Inflation Expectations in Turkey, Unpublished Thesis, Central Bank of the Republic of Turkey.
Blinder, A. S. (1998). Central Banking in Theory and Practice. 1. Ed., Cambridge: The MIT Press.
Blinder, A. S. et. al. (2008). Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence. NBER Working Paper Series, 13932, 1-73.
Blinder, A. S. (1998). Central Banking in Theory and Practice. 1. Ed., Cambridge: The MIT Press.
Cecchetti, S. G. & Krause, S. (2002). Central Bank Structure, Policy Efficiency and Macroeconomic Performance: Exploring Empirical Relationships, Review-Federal Reserve Bank of Saint Louis, 84(4), 47-60.
Çiçek et. al. (2011). Anchoring of inflation expectations and Credibility in Turkey. Economics, Business and Finance Journal, 26(304), 37-55.
Friedman, M. (1968). The Role of Monetary Policy. The American Economic Review, 58(1), 1-17.
Gould, D. M. (1999). Does the Choice of Nominal Anchor Matter?. Federal Reserve Bank of Dallas Research Papers. wp9914, 1-37.
IMF (1999), Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles, September 26, http://www.imf.org/external/np/mae/mft/code/eng/code2e.pdf (20.06.13).
Jensen, H. (2002). Optimal Degrees of Transparency in Monetary Policymaking, Scand. J. of Economics, 104(3), 399–422.
Küçükkale, Y. (2003). A not on the sustainability of the stabilisation policies: Does responce variation affect sustainability of the sustainability of the stabilisation policies, VI. National Econometrics and Statistics Symposium, Gazi University, Ankara, Turkey. 1-9
Mishkin, F. S. (1995). Symposium on the Monetary Transmission Mechanism, Journal of Economic Perspectives 9, 4, 3–10.
Oktar, S. & Dalyancı, L. (2012). The Effects of Monetary Policy on Economic Growth in Turkey. Marmara University Economics and Administrative Sciences Faculty Journal 32(1), 1-18.
Özgen, F. B. & Güloglu B. (2004). Analysis of Economic Impacts of Government Debt in Turkey by VAR Technique. METU Studies in Development, 31.1, 93.
Semenenko, T.O.& Nilova, N. M. (2011). Inflation Expectation in Transmission Mechanism of Monetary Policy. International Scientific Journal of Mechanism of Economic Regulation, No:3, 336.748.12.
Svensson, L. E. O. (1999). Inflation Targeting as a Monetary Policy Rule. Journal of Monetary Economics, 43(3), 607-654.
Mishkin, F. S. (1999). International Experiences With Different Monetary Policy Regimes. NBER Working Paper Series, 6965, 1-46.
Mishkin, F. S. (2006). Monetary Policy Strategy: How Did We Get Here?. NBER Working Paper Series, 12515, 1-45.
Taylor, J. B. (1998). Applying Academic Research on Monetary Policy Rules: An Exercise in Translational Economics, The Manchester School, 66, 1–16.
TCMB. (2001). Press Announcement. 2001/39, 8 August, http://www.tcmb.gov.tr/yeni/duyuru/DUY2001-39.html (07.08.2015).
Walsh, C. E. (2007). The Contribution of Theory to Practice in Monetary Policy: Recent Developments. in “Monetary Policy-a Journey from Theory to Practice”, European Central Bank (Ed.), Frankfurt. 142-159.