Monetary targeting strategies: Appropriate policy options for Turkey

Price Stability has been a primary target for monetary policies because of the issue ofinflation emerging as a serious problem in 1970s. Although monetary policy applications havedifferent features accross the countries according to their social and economic conditions andthe positions of their central banks, price stability has kept this critical importance as beingthe ultimate goal. In the second half of the 1970s many countries has left the interest rate andexchange rate targeting, instead they have led to monetary aggregates. That monetarytargeting being succesfull depends on long termed stable relation the targeted monetaryaggregates and inflation. In short, money demand is supposed to be stable. After 1990s,inflation targeting has been new strategy, since monetary targeting and exchange ratetargeting methods couldn?t manage to eliminate inflation. Inflation targeting has been veryfrıitful in terms of price stability in some countries.In Turkey, the adverse effects of long lasting unstable inflation could not have beeneliminated. Therefore, political and economic fluctiations have proposed the credibility issuefor the agenda. Recent examples of this issue are October 2000 and February 2001 crises.Therefore, it is not easy to remove this credibility questions in markets and to deal withmarket participants prejudices. As a result, monetary policy applicating to obtain pricestability is essential for a stable macroeconomic performance. The aim of this thesis is topoint out some proposals for a proper monetary policy application by analysing practicesaccross the countries and considering Turkey?s conditions.Keywords: Monetary Policy, Price Stability, Monetary Targeting, Exchange Rate Targeting,Inflation Targeting, Var Model, Turkey?s Monetary Policies.