Browsing by Subject "Taylor Rule"

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Open Access
Implications of global financial crisis on inflation targetting framework
(2012) Yağcıbaşı, Özge Filiz
Aside from its devastating effects on global economy, global financial crisis has also shaken the mainstream economic theory. After the crisis, policies implemented by governments and Central Banks, issues of financial stability, impacts of international capital flows and exchange rates have become the center of macroeconomic research. This thesis examines the impact of global financial crisis on the IT framework. The aim is to discuss the imperfections and defections in the framework and propose extensions. In this context, a small open economy DSGE model, calibrated for Turkey during 2003- 2012 is proposed. The base model is extended to capture dynamics of Turkish economy better. Since, trade and credit channels of transmission mechanism of crisis are the most powerful channels for the contagion of the crisis to Turkish economy, inclusion of net international investment position (to the problems of households and entrepreneurs) and imported capital good (to the production function) strengthen the explanatory power of the model considerably. Moreover, to address whether allowing Central Bank to respond exchange rates yields gains in terms of output and inflation stabilization, an augmented Taylor rule which incorporates exchange rates is constructed. Responses under the benchmark model where Central Bank uses a traditional Taylor rule and an augmented Taylor rule are obtained. To provide a reference in interpreting the findings of the model, a Vector Auto Regression analysis is performed with interest rates, inflation, output level and exchange rates as endogenous variables. Finally, results of the model experiments and VAR are compared. The results indicate that, the model with the augmented Taylor rule can help to smooth business cycle fluctuations more effectively than conventional Taylor rule but, in some cases, Central Bank may encounter with a tradeoff between output gap and inflation.
Open Access
Panel cointegration analysis to exchange rate determination : monetary model versus Taylor rule model
(2009) Kutlu, Vesile
This thesis examines the validity of the monetary model and the Taylorrule model in determining exchange rates in the long run. The monetary model and the Taylor-rule model are tested using the US dollar exchange rates over 1980:01-2007:04 periods for 13 industrialized countries. Johansen Fisher Panel cointegration technique provides evidence that there exist a unique cointegration relationship between the nominal exchange rates and a set of fundamentals implied by the monetary model and the Taylor rule model. The cointegrating coefficient estimates for the monetary model and the Taylor rule model are found by using panel dynamic ordinary least square (DOLS) estimator. The estimation results show that the effects of the monetary and the Taylor rule fundamentals on exchange rates are not the same as what the theory suggests. Overall, the findings of this thesis imply that there is no support for the monetary model and there is little support for Taylor-rule model in explaining exchange rates.
Open Access
A study about the monetary policy rule of the Central Bank of the Republic of Turkey in the implicit inflation targeting framework
(2006) Kaya, Şerife Demet
The gist of the study presented in this thesis is to provide an answer mainly to two questions: First; whether in the last four years the Central Bank of the Republic of Turkey (CBRT or Central Bank) has followed a monetary policy rule consistent with its commitments about price stability objectives, implicit inflation targeting regime and floating exchange rate. Second one is if it has done to what extend this rule has resembled the original Taylor rule. In the study, to investigate the answer to these questions a backward-looking model for a monetary policy rule is described and is subjected to an econometric estimation process. It yields significant results for the interval between 2001 and 2005. In a summary, the findings support that while after 2001 the rate of inflation has continued to be a dominant indicator to which the CBRT reacted consistent with its commitments, coming to the current years the real exchange rate (RER) movements and current account deficits have gained an increasing significance in monetary policy rule. Hence, the thesis argues that instead of being tied to a simple Taylor rule, the CBRT might have adopted a differentiated policy rule where it has concerned RER and current account deficit beside the rate of inflation.