The effect on inflation targeting on economic performance in developing countries: The example of Turkey

In developed and developing countrıes the lack of price stability, exchange rate targeting, money supply targeting and interest targeting that are applied force these countries to search a new monetary policy. Resulting in success inflatıon targeting policy applied in New Zealand in 1990 becomes the reason of many developed and developing countries to head for the same situation too. Before application it is necessary to fulfill some preconditions in order to achieve the target desired. Although inflation targeting results in success in developed countries it faces some drawbacks. These drawbacks are experienced in developing countries especially while they are trying to access to inflation targeting. For long years Turkey doesn?t have political stability and high inflation rate. This is the reason why Turkey is late for stepping into inflation targeting. The political instability and high inflation rate in Turkey has for long years delay its entry to inflatıon targeting strategy until 2006. The aim of this study is to examine the effect of inflation targeting on economic performance in developing countries and to test whether in Turkey this strategy can be applied or not. In this term, 2001: 01-2012:12 period data will be tested by the help of VAR Model and Causality Analysis. According to findings obtained from VAR Model and Causality Analysis variables are affected by both own delays and other variables. In these results ıt is seen that the interest rate is more external than other variables. According to the findings of variance decomposition of the variables is the most explanatory variable is its own delays.