Skip to main content
SpringerLink
Log in

Describing of central banks’ monetary policy in the context to linear and nonlinear taylor rule: the case of Turkey

  • Published:
Quality & Quantity Aims and scope Submit manuscript

Abstract

This study analyzes whether the original and expanded Taylor rules are valid in determining policy interest rates, which are used as the main instrument of monetary policy by the Central Bank of the Republic of Turkey (CBRT), which has adopted the inflation targeting regime. In this context, the validity of the original and extended Taylor rules for the 2000–2020 period is analyzed econometrically within the scope of linear and nonlinear time series analysis. According to the results obtained, the Taylor rule is valid in the analysis periods with respect to inflation, production, and foreign currency shortage. These results show that monetary policy strategies are designed within the original and expanded Taylor rules and that money market policy interest rates are determined by considering the changes in inflation, production, and foreign currency shortage.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

References

  • Akdeniz, C.: Taylor kuralinin farkli para politikasi rejmleri altinda geçerliliği: türkiye ekonomisi için tvp-var modeli uygulaması. Fin. Araşt. Ve Çalış. Derg. 13(25), 293–308 (2021)

    Google Scholar 

  • Akdeniz, C., ve Çatık, A.N.: Finansal koşulların taylor kuralının geçerliliği üzerindeki etkisi: türkiye üzerine ampirik bulgular. Tesam Akad. Derg., Türk. Ekon. Özel Sayısı 6, 107–126 (2019)

    Google Scholar 

  • Altunöz, U.: Investigating the presence of fisher effect for the China economy. Sosyoekonomi J. Sosyoekonomi Soc. 26(35) (2018)

  • Altunöz, U.: Faiz Haddinin Ekonominin Gelir ve Enflasyon Seviyesine Uyum Sağlayabilirliği Türkiye Ekonomisi İçin Taylor Kuralı Analizi. Mehmet Akif Ersoy Üniv. İktis. Ve İdari Bilimler Fak. Dergisi 6(1), 49–63 (2019)

    Article  Google Scholar 

  • Arestis, P., Sawyer, M.: A critical reconsideration of the foundations of monetary policy in the new consensus macroeconomics framework. Camb. J. Econ. 32(5), 761–779 (2008)

    Article  Google Scholar 

  • Bal, H., Tanrıöver, B., ve Erdoğan, E.: Taylor kurali kapsaminda merkez bankasi politika faiz oranlarinin belirlenmesi: stokastik trend yaklaşımı, J. Acad. Val. Stud. (JAVS), 6. ISSN:-8598 (2016)

  • Ball, L.: Policy Rules for Open Economies. In: Taylor, J.B. (ed.) Monetary Policy Rules. University of Chicago Press, Chicago (1999)

    Google Scholar 

  • Bec, F., ve Salem, M.B., Collard, F.: Asymmetries in monetary policy reaction function evidence for the U.S., French and German Central Banks. Stud. Nonlinear Dyn. Econom. 6(2), 1–26 (2002)

    Google Scholar 

  • Bernanke, B.S., Woodford, M.: Inflation forecasts and monetary policy. J. Money Credit Bank. 29(4, Part 2), 654–684 (1997)

  • Bernanke, B., Gertler, M.: Monetary policy and asset price volatility. Econ. Rev., Fourth Q. 84, 77–128 (1999)

    Google Scholar 

  • Bernanke, B.S., Gertler, M.: Monetary Policy and Asset Price Volatility. Pages of: New Challenges for Monetary Policy. In: Jackson Hole Symposium, Federal Reserve Bank of Kansas City, 77–128 (1999b, Nisan)

  • Brown, R.L., ve Durbin, J., Evans, J.M.: Techniques for testing the constansy of regression relations over time. J. R. Stat. Soc. Series B 37, 149–163 (1975)

    Google Scholar 

  • Bullard, J., ve Mitra, K.: Determinacy, Learnability, and Monetary Policy Inertia. Federal Reserve Bank of St. Louis Working Paper, 200–030a (2000)

  • Caporale, G.M., Helmi, M.H., Çatık, A.N., Ali, F.M., veAkdeniz, C.: Monetary policy rules in emerging countries: Is there an augmented nonlinear taylor rule? Econ. Modell. 72, 306–319 (2018)

    Article  Google Scholar 

  • Castro, V.: Can central banks’ monetary policy be described by a linear (augmented) Taylor rule or by a nonlinear rule? J. Financ. Stab. 2011, 228–246 (2011)

    Article  Google Scholar 

  • Chadha, J.S., Nolan, C.: Optimal simple rules for the conduct of monetary and fiscal policy. J. Macroecon. 29, 665–689 (2007)

    Article  Google Scholar 

  • Choi, W.G., Wen, Y.: Dissecting tayor rules in a structural VAR. IMF Working Paper, No:10/20 (2010)

  • Clarida, R., Gali, J., Gertler, M.: Monetary policy rules in practice: some international evidence. Eur. Econ. Rev. 42, 1033–1067 (1998)

    Article  Google Scholar 

  • Clarida, R., Gali, J., Gertler, M.: Monetary policy rules and macroeconomic stability: evidence and some theory. Q. J. Econ. 115(1), 147–180 (2000)

    Article  Google Scholar 

  • Clarida, R., Gerdler, M.: How the Bundesbank Conducts Monetary Policy. In: Romer, C.D., Romer, D.H. (eds.) Reducing Inflation, pp. 363–604. The Univ. of Chicago Press (1997)

    Google Scholar 

  • Darius, K.: Nonlinear taylor rule for the European central bank. Econ. Bull., AccessEcon 34(3), 1798–1804 (2014)

    Google Scholar 

  • Dickey, D.A., Fuller, W.A.: Distributions of the estimators for autoregressive time series with a unit root. J. Am. Stat. Assoc. 74(366), 427–431 (1979)

    Article  Google Scholar 

  • Dolado, J., Pedrero, R.M.D., ve Ruge-Murcia, F.J.: NonlinearMonetary Policy Rules: Some New Evidence for the US. Stud. inNonlinear Dyn. Econom., 8(3) (2004)

  • Orpanides, A.: Taylor Rule’s. FEDS Working Paper, 18: 1–13 (2007a)

  • Florens, C., Jondeau, E., Bihan, H.L.: Assessing GMM estimates of the federal reserve reaction function. Banque de France Working Papers, No:83. (2001)

  • Fontana, G.: Why money matters: wicksell, keynes, and the new consensus view on monetary policy. J. Post Keynes. Econ. 30(1), 43–60 (2007)

    Article  Google Scholar 

  • Garcia, C.J., Restrepo, J.E., Roger, S.: How much should inflation targeters care about the echange rate? J. Int. Money Financ. 30(7), 1590–1617 (2011)

    Article  Google Scholar 

  • Gascoigne, J., Turner, P.: Asymmetries in Bank of England monetary policy. Appl. Econ. Lett. 11(10), 615–618 (2003)

    Article  Google Scholar 

  • Gerlach, S., Lewis, J.: ECB reaction functions and the crisis of 2008. SSRN: https://ssrn.com/abstract=1889995 (2011)

  • Gerlach-Kristen, P.: Interest-rate smoothing: Monetary policy inertia or unobservable variables? Contrib. Macroecon. 4(1), 1169–1186 (2004)

    Google Scholar 

  • Hodrick, R.J., ve Prescott, E.C.: Postwar U.S. business cycles: an empirical investigation. J. Money, Credit, Bank. 29, 1–16 (1997)

    Article  Google Scholar 

  • Hsing, Y.: Is the monetary policy rule responsive to exchange rate changes? The case of Indonesia, Malaysia, the Philippines, and Thailand. Int. Rev. Econ. Springer 56(2), 123–132 (2009)

    Article  Google Scholar 

  • Judd, J., Trehan, B.: The cyclical behavior of prices: interpreting the evidence. J. Money Bank Credit 27, 789–797 (1995)

  • Judd, J.P., Rudebusch, G.D.: Taylor’s rule and the Fed: 1970–1997. FRBSF Econ. Rev. 3, 3–16 (1998)

    Google Scholar 

  • Kapetanios, G., Shin, Y., Snell, A.: Testing for a unit root in the nonlinear STAR framework. J. Econom. 112, 359–379 (2003)

    Article  Google Scholar 

  • Kerr, W., Robert, G.K.: Limits on interest rate rules in the IS model. Fed. Reserve Bank Richmond Econ. Q. 82, 47–75 (1996)

    Google Scholar 

  • Kim, D.H., Osborn, D.R., ve Sensier, M.: Nonlinearity in the fed’smonetary policy rule. J. Appl. Economet. 20(5), 621–639 (2005)

    Article  Google Scholar 

  • Kozicki, S.: How useful are taylor rules for monetary policy? Fed. Reserve Bank Kans. City Econ. Rev. 84, 5–30 (1999)

    Google Scholar 

  • Kulikauskas, D.: Nonlinear taylor rule for the European Central Bank. Econ. Bull. AccessEcon 34(3), 1798–1804 (2014)

    Google Scholar 

  • Kutlar, A.: Ekonometrik Zaman Serileri. Gazi Kitapevi, Ankara (2000)

    Google Scholar 

  • Laidler, E.W.D.: The Demand for Money: Theories, Evidence and Problems, 4th edn. Harper Collins College Publishers, New York (1993)

    Google Scholar 

  • Leigh, D.: Estimation the federal reserve’s implicit inflation target: a state spave approach. J. Econ. Dyn. Control 32, 2013–2030 (2008)

    Article  Google Scholar 

  • Levin, A., Wieland, V., Williams, J.C.: Robustness of Simple Monetary Policy Rules Under Model Uncertainity. Board of Governers of the Federal Reserve System, Washington (1998)

    Book  Google Scholar 

  • Lumsdaine, R.L., Papell, D.H.: Multiple trend breaks and the unit-root hypothesis. Rev. Econ. Stat. 79(2), 212–218 (1997)

    Article  Google Scholar 

  • Manogaran, L., Sek, S.K.: Can taylor rule be a good representation of monetary policy function for ASEAN5? Indian J. Sci. Technol. (2016). https://doi.org/10.17485/ijst/2016/v9i48/109305

    Article  Google Scholar 

  • Mishkin, F.S.: The role of output in the conduct of monetary policy. NBER Working Paper (9291). (2002)

  • Mohanty, M.S., ve Klau, M.: Monetary Policy Rules in Emerging Market Economies: Issues and Evidence. BIS Working Papers, 149:1–33. (2004)

  • Nebot, C.A., Garcia-Solanes, J., Beyaert, A.: New insights into the non-linearity of the ECB taylor rule. Appl. Econ. Lett. 26(12), 1044–1048 (2019). https://doi.org/10.1080/13504851.2018.1529389

    Article  Google Scholar 

  • Nelson, E.: UK Monetary Policy 1972–1997: A Guide using Taylor Rules. Bank of England Working Paper, No:120. (2000)

  • Ongan, T.H.: Enflasyon Hedeflemesi ve Taylor Kuralı. İstanb. Üniv. Maliye Araşt. Konf. 45, 3–12 (2004)

    Google Scholar 

  • Orphanides, A.: Monetary policy rules based on real-time data. Am. Econ. Rev. 91(4), 964–985 (2001)

  • Orphanides, A.: Monetary policy rules, macroeconomic stability and inflation: a view from the trenches. J. Money, Credit, Bank. 2, 151–175 (2004)

    Article  Google Scholar 

  • Orphanides, A.: Taylor Rules. FEDS Working Paper No. 2007-18. (2007). Available at SSRN: https://ssrn.com/abstract=999563, https://doi.org/10.2139/ssrn.999563

  • Orphanides, A., ve Volker, W.: Efficient monetary policy design near price stability. J. Jpn. Int. Econ. 13(327–365), 25 (2000)

    Google Scholar 

  • Peker, O., Sümer, A.L.: Yeni keynesyen yaklaşim perspektifinde optimal taylor kurali: türkiye örneği. Bankacılar Derneği, Sayı 107, 77–91 (2018)

    Google Scholar 

  • Perron, P.: The great crash, the oil price shock, and the unit root hypothesis. Econometrica 57(6), 1361–1401 (1989)

    Article  Google Scholar 

  • Pesaran, M.H., Shin, Y., Smith, R.: Bounds testing approaches to the analysis of level relationship. J. Appl. Economet. 16(3), 289–326 (2001)

    Article  Google Scholar 

  • Petersen, K.: Does the Federal Reserve Follow a Non-Linear Taylor Rule? Economics Working Papers. 200737 (2007)

  • Qin, T., Enders, W.: In-sample and out of-sample properties of linear and nonlinear taylor rules. J. Macroecon. 30, 428–443 (2008)

    Article  Google Scholar 

  • Rudebusch, G.D., Svensson, L.E.O.: Policy Rules for Inflation Targeting. Federal Reserve Bank of San Francisco Working Paper, No:6512. (1998)

  • Seo, B., Kim, S.: Rational expectations, long-run taylor rule, and forecasting inflation. Seoul J. Econ. 20(2), 239–262 (2007)

    Google Scholar 

  • Shin, Y., Yu, B., Greenwood Nimmo, M.: Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ardl framework. Ssrn Electron. J. 14, 281–314 (2013)

    Google Scholar 

  • Svensson, L.A.O.: Open economy inflation targeting. J. Int. Econ. 50(1), 155–183 (2000)

    Article  Google Scholar 

  • Svensson, L.E.O.: ‘What is wrong with Taylor rules? Using judgement in monetary policy through targeting rules’. (2001) http://www.iies.su.se/leosven/papers/JEL.pdf

  • Taş, S., Özbek, S.: Enflasyon hedeflemesi stratejisinde genişletilmiş taylor kurali’nin geçerliliği: türkiye üzerine ampirik bulgular. J. Econ. Res. 2(1), 13–25 (2021)

    Google Scholar 

  • Taylor, J.B.: Discretion versus policy rules in practice. In: Carnegie-Rochester Conference Series on Public Policy, vol. 39, pp. 195–214. Elsevier (1993)

  • Taylor, B.J.: Discretion versus policy rules in practice. Carnegie-Rochester Conf. Ser. Pub. Policy 39, 195–214 (1996)

    Article  Google Scholar 

  • Taylor, J.: Teaching modern macroeconomics at the principles level. Am. Econ. Rev. 90(2), 90–94 (2000)

    Article  Google Scholar 

  • Taylor, J.B.: The role of the exchange rate in monetary policy rules. Am. Econ. Rev. 91(2), 263–268s (2001)

    Article  Google Scholar 

  • Taylor, M.P., ve Davradakis, E.: Interest rate setting and inflation targeting: evidence of a nonlinear taylor rule for the United Kingdom. Stud. Nonlinear Dyn. Econ. (2006). https://doi.org/10.2202/1558-3708.1359

    Article  Google Scholar 

  • Toker, K.: Türkiye’de enflasyon hedeflemesi ve Taylor kuralının geçerliliği. Yüksek Lisans Tezi, Pamukkale Üniversitesi Sosyal Bilimler Enstitüsü, Denizli (2020)

    Google Scholar 

  • Wicksell, K.: Interest and Prices. Sentry Press (1898)

    Google Scholar 

  • Woodford, M.: Interest and Prices: Foundation of a Theory of Monetary Policy. Princeton University Press Princeton and Oxford (2003)

    Google Scholar 

  • Yalçınkaya, Ö., Yazgan, Ş: Taylor kurali kapsaminda türkiye cumhuriyet merkez bankasi para politikasi tepkilerinin belirlenmesi: doğrusal ve doğrusal olmayan zaman serisi analizi (2002:Q1–2019Q:2). Akdeniz İİBF Dergisi 20(1), 35–65 (2020)

    Google Scholar 

  • Yazgan, M.E., ve Yilmazkuday, H.: Monetary policy rules in practice: evidence from Turkey and Israel. Appl. Financ. Econ. 17(1), 1–8 (2007)

    Article  Google Scholar 

  • Zhu, Y., ve Chen, H.: The asymmetry of us monetary policy: evidence from a threshold taylor rule with time-varying threshold values. Phys. A 473, 522–535 (2017)

    Article  Google Scholar 

  • Zivot, E., ve Andrews, D.: Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. J. Bus. Econ. Stat. 10(3), 251–270 (1992)

    Google Scholar 

Download references

Funding

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Author information

Authors and Affiliations

  1. Sinop University, Sinop, Turkey

    utku altunöz

Authors
  1. utku altunöz
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to utku altunöz.

Ethics declarations

Conflict of interest

The authors have not disclosed any competing interests.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

altunöz, u. Describing of central banks’ monetary policy in the context to linear and nonlinear taylor rule: the case of Turkey. Qual Quant 56, 4641–4662 (2022). https://doi.org/10.1007/s11135-022-01329-5

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11135-022-01329-5

Keywords

JEL Classification

Search

Navigation