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Fear of Floating and Inflation Targeting in Turkey

Author

Listed:
  • Vasif Abiyev

    (Aksaray University, Department of Economics, Adana Yolu, E-90 Karayolu, Aksaray, 68000, Turkey)

  • Munise Ilıkkan Özgür

    (Aksaray University, Department of Economics, Adana Yolu, E-90 Karayolu, Aksaray, 68000, Turkey)

Abstract

The objective of this paper is to test empirical validity of Fear of Floating hypothesis for Turkey after the adoption of Inflation Targeting. We start applying methodologies developed by Calvo and Reinhart (2002) and Ball and Reyes (2004, 2008) to check the probabilities of changes in exchange rate and monetary policy instruments before and after inflation targeting regime. We then use a VAR model to estimate exchange rate pass-through and response of monetary policy instruments to exchange rate shocks before and after inflation targeting regime. VAR model helps to understand the impacts of switch in monetary policy regime on exchange rate pass-through and foreign exchange market interventions. The paper concludes that after the adoption of inflation targeting regime, the exchange rate pass-through still matters for the attainment of inflation targets and the monetary policy do not exhibit a fear of floating practices.

Suggested Citation

  • Vasif Abiyev & Munise Ilıkkan Özgür, 2014. "Fear of Floating and Inflation Targeting in Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 7(3), pages 25-42, December.
    • Handle: RePEc:tei:journl:v:7:y:2014:i:3:p:25-42
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fear of floating; fear of inflation; exchange rate pass-through; free floating exchange rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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