Does the central bank directly respond to output and inflation uncertainties in Turkey?

Abstract

This paper investigates the role of inflation and output uncertainties on monetary policy rules in Turkeyfor the period 2002:01e2014:02. In the literature it is suggested that uncertainty is a key element inmonetary policy, hence empirical models of monetary policy should regard to uncertainty. In this study,we estimate a forward-looking monetary reaction function of the Central Bank of the Republic of Turkey(CBRT). In addition to inflation and output gap variables, our reaction function also includes both theinflation and output growth uncertainties. Our results suggest that the Central Bank of the Republic ofTurkey (CBRT) concerns with mainly price stability and signiŞcantly responds to inflation and growthuncertainties.© 2016 Central Bank of The Republic of Turkey. Production and hosting by Elsevier B.V. This is an openaccess article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)