Effects of the strategy of inflation targeting on the inflation volatility and inflation persistence: Turkey sample

Inflation targeting is a monetary policy strategy that has become more and more popular in recent years. That this strategy has given good results in combatting with the inflation plays a significant role in that this monetary policy is preferred by countries. In order for the inflationg targeting strategy to be accepted as an effective monetary policy, inflation ratio is to fall, as well. On the other hand, the inflation must decrease its volatility and persistence.In this study, the hypothesis that inflation targeting strategy decreases the inflation ratio, reduces the inflation volatility and has no effect on the inflation persistence has been assessed through an econometric application conducted with Turkey data of 1995-2009 period. In the study, equations of inflation prediction has been figured with EKK and Chow test has been applied. Schwert Volatilite index has been utilized in figuring the inflation volatility. In measuring the inflation persistence, autoregressive process in which the inflation is the only variable has been predicted.According to the results of the study, inflation targeting strategy in Turkey decreases the inflation ratio, reduces the inflation volatility and has a little increasing effect in the inflation persistence. Since it is not at a considerable scale, this effect has not been taken into consideration. Results of the study correspond to results of most of the studies conducted worlwide. In this context, inflation targeting in Turkey is regarded as a successful monetary policy.Key Words: Inflation Targeting, Inflation Ratio, Inflation Volatility, Inflation Persistence, Central Bank of The Republic of Turkey.