International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

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 Volume 8, Issue 7 (July 2021), Pages: 84-88

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 Original Research Paper

 Title: Validity of Taylor's rule for Turkey: An empirical study

 Author(s): Dilek Tokel 1, *, Saltuk Ağıralioğlu 2, Lamiha Öztürk 2

 Affiliation(s):

 1Department of Economics, Faculty of Economics, Marmara University, Istanbul, Turkey
 2Department of International Trade and Logistic Management, Faculty of Economics, Administrative and Social Sciences, Hasan Kalyoncu University, Gaziantep, Turkey

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 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0001-9724-5060

 Digital Object Identifier: 

 https://doi.org/10.21833/ijaas.2021.07.010

 Abstract:

The aim of this paper is to propose an estimate of the reaction function of Turkey's monetary policy for the periods from January 2005 to January 2020. In this perspective, a VAR (Vector Autoregressive) model is set up. The VAR model was estimated using Stata software. In this study, the Taylor rule is extended by implicating the industrial production index and the monetary aggregate M2 into policy reaction function. By doing so, the Taylor rule is investigated for the Turkish economy, and the validity of the rule is tested. The results of the ADF test show for all the observed variables that the null hypothesis of a unit root is rejected. In other words, the condition of stationarity seems to be satisfied. In the short term, it seems that a change in the behavior of the variable M2 has an impact of 1% on the level of the current inflation rate as well as the current real interest rate. For the period studied, the results of the VAR modeling indicate that Taylor's rule is partly true for the short term but that it is not for the long term. The choice of the period studied seems to be the main reason for the non-cointegration between the inflation rate and the bank rediscount rate. 

 © 2021 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords: Taylor rule, Interest rate, Monetary policy, Vector autoregressive model, Reaction function, Forward guidance

 Article History: Received 6 January 2021, Received in revised form 21 March 2021, Accepted 11 April 2021

 Acknowledgment 

No Acknowledgment.

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

  Tokel D, Ağıralioğlu S, and Öztürk L (2021). Validity of Taylor's rule for Turkey: An empirical study. International Journal of Advanced and Applied Sciences, 8(7): 84-88

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 Figures

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 Tables

 Table 1 Table 2 Table 3 

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