Prague Economic Papers 2005, 14(2):171-179 | DOI: 10.18267/j.pep.261

Impact of Monetary Policy on Economic Instability in Turkey (1983 - 2003)

Mete Feridun
Faculty of Economics and Administrative Studies, Cyprus International University, Nicosia, Cyprus (e-mail: mete.feridun@lycos.com).

This article aims at revealing the effectiveness of Turkish monetary policy in controlling inflation rate and the stability of exchange rate using the rational expectation framework that incorporates the fiscal role of exchange rate. Based on quarterly data covering the period between 1983: Q4 and 2003: Q4, the analysis affirms that the effort of the Turkish monetary policy at influencing the finance of government fiscal deficit through the determination of the inflation-tax rate, to some extent, affects both the rate of inflation and the real exchange rate, thereby causing volatility in their rates. Moderate evidence emerges that inflation affects volatility of its own rate as well as the rate of real exchange.

Keywords: monetary policy, rational expectations approach, economic instability
JEL classification: C43, C81, I32

Published: January 1, 2005  Show citation

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Feridun, M. (2005). Impact of Monetary Policy on Economic Instability in Turkey (1983 - 2003). Prague Economic Papers, 14(2), 171-179. doi: 10.18267/j.pep.261
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