The critique of the New Consensus model, Post Keynesian inflation targeting models and monetary policy rules

Monetary policy used today in many central banks is based on New Consensus Model. Monetary policy's aim is the price stability and inflation is a monetary phenomenon. With the price stability, decreasing the cost of inflation and the reaching potential (natural) output are targeted in the long run. In Post Keynesian approach, interest rules based on inflation targeting are rejected and three alternative interest rules are developed. First of interest rules is Pasinetti's fair interest rate rule. In this interest rate, interest rate is equalized to the increase in wage rates. Second interest rate is Kansas rule in which nominal interest is equalized to zero. Third interest rate is Smithin rule which is based on easy monetary policy and low interest. In this study, forward looking Taylor rules validity is examined. Monthly Turkish data is from June of 2006 to February of 2015 is employed in this study. In this research, real interest rate, interest rate smoothing variable, exchange rate and output gap variables are used. Long run relation is analyzed between variables employing Johansen cointegration test. After, causality is tested between variables. In the conclusion of these tests, long run relation is found between real interest rate, interest rate smoothing and inflation gap variables. The conclusion of Granger causality test indicates that there is a long run causality from inflation gap and interest rate smoothing variable to interest rate. Keywords: Post Keynesian interest rate rules, Post Keynesian inflation targeting, New Consensus inflation targeting, CBRT monetary policy.