Estimating the sacrifice ratio within the framework of the monetary policy in Turkey

Within the framework successful management of the monetary policy, all the effects of the policy must be predicted by central banks. Central Bank of the Republic of Turkey primarily aims achieve and maintain price stability, as the modern central banking approach. Especially after the 2008 financial crises, literature discussions have gradually increased of the costs of disinflation policies besides maintaining price stability. Hereunder, disinflation policies unstable total output level and increases unemployment rate by the virtue of output loss. This study aims to examine the trade-off between inflation and output level for the disinflation period of Turkey. The study uses structural VAR (SVAR) model in estimating over 2005M1-2013M12 monthly period with inflation rate and industrial production index data. According to results of the estimate, in furtherance of the theoretical expectations, statistically significant relation monitored between inflation an output loss. It is observed on the basis of these data and methodology that, a one percentage point permanent reduction in the annual inflation rate leads to a 0.88 percent cumulative output loss for the whole economy in Turkey. Keywords: Sacrifice ratio, Output loss, Monetary policy, SVAR.