The developments in monetary policy: The case of Turkey

It is obvious that there have been significant developments in the world economy in the recent years and these developments have certainly had reflections on economic theory. One important development has been observed in monetary policy: The price stability has become the main priority of monetary policy from the collapse of the Bretton Woods system in the 1970s to the 2010s. The debate has been concentrated on which monetary regime may be appropriate in order to achieve this objective. The New Neoclassical Synthesis has gained an advantage over the alternative policy regimes, regarding its application and assessment and the result of the methodological convergence;. Methodoligically, The New Neoclassical Synthesis employs dynamic general equilibrium theory and that has a successful attemp to eliminate the difference between microeconomic and macroeconomic foundations of monetary policy. The New Neoclassical Synthesis adopts inflation targetting and assumes that inflation targetting reaches to the goal of price stability, and reduces the fluctations in production and employment. The intended study aims to investigate and tries to explain the development that has occured in macroeconomics along with modelling on monetary policy at the end of the 20th and the early 21st centuries. The Turkish experience will be treated as a case study. Thesis plan is as follows: A historical evaluation of monetary policy, theoretical debates and applied monetary policies within framework of The New Neoclassical Synthesis. The study comes to an end with a search of acceptability of The New Neoclassical Synthesis model, which is a dynamic stochastic general equilibrium model, by using Generalized Method of Moments. It has been concluded that model's application to the Turkish economy is appropriate.