The Applicability of Inflation Targeting in Turkey

High inflation has always been a major problem especially for developing countries. Many countries, including Turkey, have employed different tools in an attempt to eradicate this problem. While some of these countries are successful, other countries are not so successful. Inflation targeting policy has been used by many different countries in the last few years. The aim of this policy is to target the inflation rate over a designated period, to lead and manage other policies according to this target and by doing this hopefully reach the targeted rate of inflation. Since the 1980?s, Turkey has been living with a high inflation rate, and therefore, throughout the 1990?s, took some precautions and applied different economic programs; unfortunately these weren?t successful. Beginning in 2000, it was seen that some programs started to sustain stability in the economy. These policies have now proved to be more successful than the previous programs. The Central Bank?s independence is the first condition of successful inflation targeting policy. In addition to this, the government?s full support and use of the relevant financial policies according to the inflation targeting policy are necessary. Another condition in order to be successful in inflation targeting is to get public support. For this, the public should be informed about inflation targeting and what the short and long term aims are. The aim of this study is, first to analyze the inflation targeting regime, other countries? experiences and than test its applicability to the Turkish 1 economy. In order to achieve this, Turkish economic data between the years 1988 and 2005 will be analyzed using the Taylor Rule. In conclusion, inflation targeting policy will be shown to be potentially successful as a means of reducing inflation.