Effectiveness of expectation channel of monetary transmission mechanism in inflation targeting system: An empirical study forTurkey
Effectiveness of expectation channel of monetary transmission mechanism in inflation targeting system: An empirical study for Turkey

Summary/Abstract: Monetary policy can affect economy through out various transmission mechanisms. One of these transmission mechanisms is expectations channel. The monetary policy can get involved in expectation channel of transmission mechanism by affecting the process of expectations formation. Because of the results of policies to be implemented variously according to the expectations, the main challenge in monetary policy is to correctly manage expectations. Because of the fact that only the systematic component of monetary policy (estimated component) can affect forward looking expectations, systematic behaviour of the central bank has a critical role in determining the economic consequences of monetary policy. In this study, the effectiveness of expectation channel of transmission mechanism was analyzed by VAR model. According to the results, TCMB cannot affect inflation expectations via both the inflation targets and the policy interest. On the other hand, inflation expectations are affected significantly by actualized inflation rates and exchange rates.

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