Transformation in monetary policy and testing of the Taylor rule for Turkish economy

Taylor Rule Provides a useful framwork for Central Banks that implement inflation targeting because of the ability to control interest rates in response to deviations between realized and targeted inflation and production rates. The main purpose of this study is to investigate whether the Central Bank's final target, ensuring price stability is to determine the monetary policy in the framework of Taylor's Rule.While linear time series methods are used in the study variables in the model cover the period of January 2002 and July 2016.First of all, to determine and expand the effect of economic shocks on variables with extended Dickey Fuller (1981) Phillips and Perron (1988) linear unit root test will be only internal structural fractured unit root test that is developed by Zivot and Andrews (1992) , taking breaks into consideration. After the Taylor Rule was deal with in the framework of the Rule Structural Autoregression Model, it was deal with in the framework of the Markow Regime Change Model and finally Delayed Distributed Cointegration Model Analysis was carried out. As a result of the analysis, while creating the Central Bank's Monetary policy only takes in to account the inflation target and it has reached the conclusion that it ignores the production target. This result is an indication that the Central Bank has not established a Taylor type reaction function. Key words: Taylor Rule, Money Policy, Inflation Targeting, MS-VAR, SVAR, ARDL