The effect of CBRT credibility on inflation: Time series analysis

A central bank is a public institution that manages the currency in a country and controls the money supply, that is, the amount of money in circulation. Central banks are institutions that act as intermediaries for commercial banks. The most important goal of monetary policies in the modern world is to ensure price stability. This can only be achieved with a low inflation target. The method used to achieve inflation targeting is monetary policies appropriate to the country structure. Thanks to monetary policies, economic activities will accelerate and this will ensure that the economy becomes stable. Bringing inflation to desired levels is only possible with the existence of an independent central bank. The most suitable environment for central banks to act as an independent institution is for the bank to be transparent and accountable. A non-independent central bank cannot intervene directly to bring inflation to desired levels. Therefore, the policy implemented by the central bank aims to control the markets by increasing credibility rates. In a controlled market environment, it is easier for inflation to reach desired levels. In this study, time series analysis method was used to measure the effect of CBRT credibility on inflation. The data obtained as a result of the credibility index calculation was analyzed by including inflation data. The findings have shown us that it is possible for a central bank that is fully independent and maintains its credibility as a result of the right policies to reach the desired values in inflation targeting.