The implicit reaction function of the Central Bank of the Republic of Turkey

Abstract

Reviewing the implicit reaction function estimation under different specifications, it appears that the Central Bank of the Republic of Turkey (CBRT) responds to the lagged inflation rate rather than the forward one, M2Y growth is targeted on an annual basis and a serious output targeting policy was implemented while neither real nor nominal depreciation of the foreign currency basket was taken into consideration during the period 1989:07–1997:03. Also, we conclude that the CBRT does not target currency issued, M2, net domestic assets or net foreign assets nor does it take any of the budget deficit measures into account while determining its monetary policy.