A comparison of monetary policy rules of Turkey

Abstract

In this thesis a dynamic general equilibrium (DGE) model with monopolistic competition and price stickiness is constructed in order to compare the macroeconomic implications of four alternative monetary policy rules for Turkey. The analyzed policy rules are non-tradable inflation targeting, money peg, exchange rate peg and a Taylor rule. The equilibrium dynamics of small open economy are generated through exogenous shocks to domestic productivity level, government expenditures, foreign interest rate and foreign price level. I find that significantly di歔erent dynamics in terms of magnitude are observed in the first periods after the shocks. Against foreign shocks,the non-tradable inflation targeting rule generates the smallest response in the main macroeconomic variables. In terms of domestic shocks the dynamics that the policy rules entail differ. Under the Taylor rule and the money peg, intermediate level responses are obtained for all shocks except tradable productivity shock.