The relationship between Central Bank independence and price stability: The case of Turkey

The emergence of the concept of central bank independence (MBB) coincided with the collapse of the Bretton Woods Monetary System in the 1970s and the period of combating high inflation after oil crises. In the modern literature, the concept of Central Bank independence is based on the work of Fynn Kydland and Edward Prescott in 1977, which explains the concept of time inconsistency. Since the Keynesian policies could not be the solution to the high inflation experienced after the oil crises, the importance of monetary policies increased and the idea that an independent central bank would prevent the increase in the general level of prices would provide price stability. Central Bank of the Republic of Turkey (CBRT) through legal changes made since its establishment has become much more independent. The statutory independence index of the CBRT before and after the law numbered 4651 was calculated according to the independence index criteria developed by Alex Cukierman, Steve Webb and Bilin Neyaptı and the relationship between the level of legal independence for CBRT and price stability was examined. In this context, firstly, the concept of central bank independence and the historical development of central bank independence in the world, the prerequisites for central bank independence and the issues related to independence have been theoretically explained in the literature. Subsequently, the Central Bank of the Republic of Turkey within the scope of legislative changes in the development of independence and the independence of the Central Bank Law No. 4651 are discussed in the framework of the new law. Finally, the relationship between the independence of the CBRT and the price stability in our country, the relationship between the CBRT and the price stability of some OECD and developing countries are discussed. In addition to price stability, relations with the Republic of Turkey Central Bank Independence Consumer Price Index rate, Policy interest rates, USD / TRY exchange rate and Central Bank of the Republic of Turkey reserves were examined in terms of taking into consideration the features specific to Turkey.