Reaction of Monetary policy to Cost-Push Inflation in Turkey:A Leaning against Wind?
Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi, vol.17, no.1, pp.256-271, 2022 (TRDizin)
- Publication Type: Article / Article
- Volume: 17 Issue: 1
- Publication Date: 2022
- Doi Number: 10.17153/oguiibf.992149
- Journal Name: Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi
- Journal Indexes: TR DİZİN (ULAKBİM)
- Page Numbers: pp.256-271
- Open Archive Collection: AVESIS Open Access Collection
- Uşak University Affiliated: Yes
Abstract
In Turkey, monetary policy responds to cost shocks rather than the inflation gap and output gap. To clarify this policy, we estimate the linear and non-linear Taylor rule using the Thresold GMM for 2006:01-2020:07. The linear model estimates that the policy rate responds significantly to the inflation gap and the real effective exchange rate. The non-linear model captures that monetary policy differs in regimes where imported goods and input prices are set as high and low. In a high price regime, monetary policy also reacts to cost-push shocks. The response of monetary policy to the exchange rate implicitly leads to "a leaning against the wind".