Estimation of New Keynesian Monetary Policy Reaction Function: Availability of Taylor Rule, McCallum Rule and Hybrid Taylor-McCallum Rule in Turkish Economy

Abstract

In this study which we investigate the availability of New Keynesian monetary policy rules in the period of inflation targeting strategy, forward looking Taylor Rule, McCallum Rule and Taylor-McCallum Hybrid Rule are estimated by using Generalized Method of Moments (GMM). Econometric results indicate that forward looking Taylor Rule corresponds to operational framework of monetary policy of Central Bank of Republic of Turkey (CBRT). CBRT determines the policy interest rate by gradual approach and endeavors to prevent big fluctuations in policy rate. Thereby while CBRT carries out monetary policy by focusing on price stability, it considers financial stability. In other words, financial stability is seen as a sustaining aim for TCMB. Notwithstanding the fact that we came through the unavailability of forward looking McCallum and Hybrid Taylor-McCallum Rule in the period of 2002-2012 at Turkish economy.