Effectiveness of Inflation Targeting: Turkey's Experience

This report delves into the effectiveness of inflation targeting as a monetary policy tool, exploring its definition, tools (interest rates, reserve requirements, and open market transactions), and characteristics, such as central bank independence, credibility, and transparency. It outlines the prerequisites for successful implementation, including central bank independence, economic stability, and advanced infrastructure. The report then examines the reasons countries adopt inflation targeting and assesses its effectiveness in developing economies, using Turkey's experience from 2002 to 2020 as a case study. The analysis covers Turkey's monetary policy during this period, identifies main challenges, and evaluates the impact of inflation targeting. Finally, the report draws lessons and concludes by summarizing the findings and their implications for economic policy.

The Effectiveness of the Inflation Targeting Policy1
THE EFFECTIVENESS OF THE INFLATION TARGETING POLICY
Course Name
Professor’s Name
Institution
Institution Location
Date

The Effectiveness of the Inflation Targeting Policy2
Contents
Introduction.................................................................................................................................................4
MAIN BODY..............................................................................................................................................5
CONCLUSION.........................................................................................................................................22
REFERENCES..............................................................................................................................................24

The Effectiveness of the Inflation Targeting Policy3
THE EFFECTIVENESS OF THE INFLATION TARGETING POLICY
Abstract
This study serves to document the effectiveness of employing inflation targeting as a
monetary policy and link it how these policies work hand in hand with economic institutions
which underwent a series of reforms to improve growth following Turkey’s financial crisis in
2001. The reversal in institutions is as a direct effect of the political turnaround. The first
political turnaround coincided with an in-depth deepening in the democratic levels in Turkey
under the tutorage and guidance of the European Union. Coupled with a series of policies to
recover the economic strength, we focus on how inflation targeting policy helped in stabilizing
the economy and how effective it is to economic growth. Faced with several challenges and
obstacles, we delve into how the adaption of inflation targeting has been effective in developing
economies, with emphasis on Turkey as our case study.

The Effectiveness of the Inflation Targeting Policy4
INTRODUCTION
According to EserTurer, Inflation targeting refers to an act by the monetary control
authority, central banks specifically, to regulate the general prices of goods and services. In an
attempt to control prices by the Central banks, policies are coined and enacted such that actual
inflation is measured against a hypothesized inflation rate using such avenues as manipulating
the interest rates (Agénor&da Silva, 2019). The hypothesized inflation, recognized as a projected
inflation rate, is spelled out, and its enactment is made known to the public. Inflation targeting
policies take effect and are distinguished because of the imminent opposite movement of the two
monetary rates; interest rates, and inflation rates. The parallel movement of the interest rates and
the Inflation rates are probable drivers of the country's growth extent. This view of inflation
targeting as control for price of goods and services is however insufficient in its definition.
Unlike what Eser suggests, inflation targeting should not only concerned with the manipulation
of the prices, rather, inflation targeting is a broad concept about the general implication of the
monetary policy on the macroeconomic front of country’s that enact the policy. Significantly,
inflation targeting with an emphasis on pricing does not affect other microeconomic objective
like reaching a stable real economy or a competitive exchange rate.
Edwin Truman proposes that inflation targeting is a strategy by the central banks to
specify an inflation rate aw a goal and to adjust the monetary policies to adjust to such
goals(Aguir, 2018, pg.93). This definition of inflation targeting focusses on the maintenance of
price stability. Economic stabilization generally left on hands of the central bank. However, this
view of inflation as a function of the central bank to control price stability disregards the
international monetary fund’s own input in monetary control especially in the emerging
economies.

The Effectiveness of the Inflation Targeting Policy5
Inflation Targeting Policy refers to a Central Bank Strategy in which a specific inflation rate is
set as a goal and the different types of adjustments are done in the monetary policy so that the
goal can be attained effectively and efficiently. Thus, In this way it can be said that the use of
this particular policy will be helpful in ensuring that the attainment of economic goals and
objectives in the future can be done. This can help in improving the economic situation within a
country and can help in targeting a higher-level of economic growth in the future. Therefore, it
becomes highly important for the Central Banks that they are able to take appropriate decisions
regarding the use of this policy which will be helpful in ensuring that the economic growth can
be enhanced in the future. Thus the economists have to contribute to the best of their abilities so
that they are able to ensure that the use of this policy can be made in a right manner. The various
types of tools which are used for the purpose of Inflation Targeting are Interest Rates, Reserve
Requirements and Open-Market Transactions. Thus, in this way it can be said that the use of ITP
can be done so that the use of these tools can be made in order to control the rate of inflation
which is prevailing in the economy. In this report, specific focus will be put on the effectiveness
of ITP. Additionally, a detailed discussion on Evaluation of the Turkish Experiment from 2002
to 2020 will be made as a part of this assignment.
MAIN BODY
Kenneth proposes that inflation targeting is described as a monetary control tool. The
central bank formulates a short-range inflation target and declares such targets of inflation to the
public to spearhead a country's economic growth and stability (Bernanke & Mishkin, 1997).
Several explanations are given for inflation targeting and its practicality. Kenneth, for example,
justifies inflation as a management framework rather than a mere rule of inflation control.
According to Kenneth, inflation targeting is a justifiable framework to objectively spearhead

The Effectiveness of the Inflation Targeting Policy6
growth through a policy rule of management in a macroeconomic environment. Kenneth fails to
recognize the importance of a wholesome view of inflation targeting as both a rule for attaining a
target inflation and a means or framework for such inflation targeting purposes.
According to Svensson, inflation targeting can be termed as flexible inflation targeting or
as simply forecast targeting. Svensson argues that inflation targeting refers to formulating a
policy rate and a policy rate path which have the advantage of making the inflation and
employment forecast appear satisfactory of looking good (Svensson, 2020). Forecasts targeting
can also mean formulating and publishing a policy target path and the forecast of both inflation
and employment, and most importantly, amplification and justifying such forecasts(Adler, Lama
and Medina, 2019).
Inflation Targeting Tools
There main tools used for inflation targeting are: interest rates, open market transactions, and
reserve requirements. The reserve requirement can be used to influence inflation targeting by
enacting a decrease in the cash on hand for the commercial banks through the central bank.
Eventually, the banks will increase the number of loans advanced to the public increasing money
supply and investment responsible for economic growth and stability(Ardakani, Kishor and
Song, 2018). On the other hand, open markets refer to the enactment of such short-term interest
rates, which are periodically changed to suit the target inflation rate at a specified interest range.
i) Interest rates- interest rates set by the central bank influences inflation. Lower interest
rates increase inflation while higher interest rates are deflationary.

The Effectiveness of the Inflation Targeting Policy7
ii) Reserve requirements- changes in reserve requirements on deposits are used to
control the number of loans in the economic system, which has effects on consumer
purchase and, eventually inflation.
iii) Open-market transactions- this phenomenon enhances openness, credibility, and
accountability in market transactions.The use of ITP here can be helpful because it
will bring transparency in the process of making the use of this tool in order to control
the rate of inflation which is prevailing in the market so that the higher-level of
economic growth can be targeted in the future.
Characteristics of inflation targeting policy
The central bank must possessthree main characteristics to ensure a successful pursuit of its i1.
1.Central bank independence
If central banks are not independent, monetary policies may be influenced by short-term
political interests that can be inconsistent with the inflation goals. For example, politicians may
try to stimulate the economy with several monetary tools hoping for reelection, which can lead to
higher inflation and failure in reaching the inflation targets previously set.
2. Central bank’s credibility
In some cases, inflation targets may be inconsistent with other macroeconomic
conditions. For example, a heavily indebted country that is aiming for a very low level of
inflation may not be credible, as it could be in the government’s interest to resort to a higher
inflation rate to dilute the real value of debt.
3. Central bank’s transparency

The Effectiveness of the Inflation Targeting Policy8
The concept of transparency is connected to that of credibility. A central bank that is not
transparent in its decisions will ultimately lose credibility. That’s why many central banks
produce quarterly reports, where they discuss the state of the economy and the trends in
variables, such as money supply, securities markets, gross domestic product (GDP),
employment, and prices(Buffie, Airaudo and Zanna, 2018).
4.Self-fulfillment of inflation-targeting policies
In some cases, inflation targeting measured by credible entities may be self-fulfilling. If
people believe that the central bank will reach its inflation target, they start to act accordingly.
For example, workers may require wage increases, at least in line with the expected inflation
target, which will ultimately lead inflation towards that level.
From other perspectivethe main characteristics of ITP which distinguishes it from the
other policies are explained in the following manner-
 There is a particular target which is set in this policy for the annual inflation.
 The inflation target is the de facto intermediate target.
 It has an important role in transparency, accountability and communication with the
public.
Thus these are the unique features of ITP which can clearly distinguish it from the other
policies. Therefore, it can be said that it is quite important that the Central Banks are able to
implement the finer details of this policy by understanding, analysing and interpreting these
features. The Economists have to make sure that they can implement the various types of
changes in the right manner effectively and efficiently(Chen and Creamer, 2019).
Prerequisites for inflation targeting policy
There are several prerequisites for the employment of inflation targeting and a successful
operation of the laid down policy regime identified in numerous scholarly articles.

The Effectiveness of the Inflation Targeting Policy9
Central bank independence-to spur economic growth, it is important that the central
bank is independent of political or any other influential governmental agencies from interference
and influence. This makes it easy and ethical when it comes to interest rate appraisal or
reduction.The Central Bank of a Country must be independent enough to ensure that the use of
ITP can help in managing the higher rate of inflation which is prevailing in the country. This will
be quite helpful in ensuring that the higher-level of economic growth can be targeted in the
future in the right manner.
Stability in country economy- low flow of capital improves the success probability of
inflation targeting. Very high rates of inflation lead to the substitution away from domestic
currency toward dollars or any other stable currencies(Fouejieu, 2017).Therefore, in this way it
can be said that the use of ITP can help in bringing the required amount of stability in the
economy helping it to aim towards economic growth.
Advanced and developed infra structure-with the presence of well-developed
institutions, the transmission of monetary policy mechanisms must be understood and should be
predictable. The connection between instruments and inflation results should be understood and
form the basis for the central bank staff to forecast inflation. These forecasts provide the reasons
for policy deliberation and, therefore, the technical capabilities of the central bank in
understanding mechanisms for monetary transmission, and the ability to forecast inflation.
Declare clear and determined target- coupled with abandoning of all other nominal
anchors and the clarity of price stability as the ultimate goal, the bank must see to fruition
monetary policy actions transparently, make known these actions to the general public, and
conclusively explain the deviations of inflation outcomes from targets efficiently with

The Effectiveness of the Inflation Targeting Policy10
appropriate and expected changes in policies to rectify these deviations. Each of these factors
have influenced the success of monetary policy after the implementation of inflation targeting.
(Roger, 2010, pg. 47).
There are some prerequisites which are required before the adoption of the ITP can be
done. The explanation of these prerequisites can be done in the following manner-
 Degree of independence of monetary policy- The monetary policy is quite important to
be applied within the economic context. Therefore, it is quite important from the point of
view of the economists that they are able to learn about the degree of independence
which they can allow in this policy which will help in ensuring that the independent
monetary decisions can be taken effectively and efficiently. During the turbulent times
which are faced by the economy, it is quite important that the Central Bank can take
tough decisions related with the monetary policy which will help a lot in ensuring that the
Inflation Targeting Policy can be implemented(Hatcher and Minford, 2016).
 Absence of commitment to a particular level of exchange rate- The absence of
commitment to a particular level of exchange rate is required because it is crucial in
ensuring that the higher-level of economic growth can be targeted. Thus, In this way it is
quite important from the point of view of Central Bank that it considers all the situations
in the market before taking a decision. If the exchange rate of the country is dependent
upon the situation which is prevailing in the market then it can ensure that the
implementation of the ITP can be done in the right manner(Hossain and Arwatchanakarn,
2017).
Who is in charge of ITP?
Inflation targeting is a monetary policy where the central bank sets a specific inflation
rate as its goal. The central bank does this to make you believe prices will continue rising
(Hammond, 2011). The Central Bank of the Republic of Turkey (CBRT) and the Turkish
Government is in charge of managing inflation with an inflation targeting policy.This tool is

The Effectiveness of the Inflation Targeting Policy11
used in order to make sure that the inflation rate can be controlled and thus the higher-level of
prices which are prevailing in the economy can be controlled in the right manner. When prices
rise at this speed, it drives consumer demand. Economic growth is spurred by shoppers buying
now to avoid higher prices later (Fouejieu,2017, pg. 51).
The implementation of Inflation Targeting Policy and the identification of the various types of
steps which can be undertaken for its implementation is a responsibility of the Central Bank of a
country. This is so because the Central Bank of a country is responsible for the identification of a
change in the different types of rates. Also it has to identify the changes in the monetary policy
so that the use of appropriate method and techniques can be made so that the economic growth
within the country can be boosted. Therefore, the Central Bank of a country is tasked with the
setting of Short-term, Medium-term and Long-term goals and objectives so that the target of
inflation for the public can be set and the appropriate steps and measures can be taken in the right
manner to control the rate of inflation(Kadria and Aissa, 2016).
Further, ensuring price stability through the use of ITP is an important objective in front
of a country's Central Bank. This is so because the prices of the different types of products can
face a lot of changes because of the dynamic situations which tend to prevail in the Business
Environment. Further, turbulent times in the economy can also lead towards price fluctuations.
Therefore, In this way it can be said that using ITP can be quite helpful in leading
towards bringing of stability in the prices in the country in the right manner.
If the prices are rising in the economy, then the rate of inflation will be quite high which will
definitely impact the level of demand in the economy. Thus, Here the Central Bank has to take
the necessary actions by bringing out the desired level of changes in the ITP so that the rate of
inflation can be controlled.
If the prices are decreasing in the economy, then the rate of inflation will be quite low which will
therefore impact the situation prevailing in the market. Therefore, the Central Bank here is
required to ensure that it can take the necessary actions so that the control on the rate of inflation
can be maintained effectively and efficiently(Kartaev, 2017).
The difficulties and obstacles in implementing the ITP in some countries
Numerous evidences today indicate that inflation targeting performs well in many
different types of economies. However, a number of difficulties and challenges arise for the

The Effectiveness of the Inflation Targeting Policy12
future in several countries. With the ballooning number of emerging markets and rapidly
developing economies adopting inflation targeting, a significant challenge is adapting a
framework that suits their circumstances (Abuselidze,2019). New emerging markets and
developing countries adapting inflation targeting encounter several obstacles that differ in
character or degree levels from those that more advanced economies face. These challenges
include;
Some of these problems and issues which can be faced while ensuring the
implementation of ITP in the countries are as follows-
1. Credibility of a systematic monetary policy framework- In a lot of countries there is
not particular monetary policy framework which is available which can be applied in
enhancing the credibility level in the right manner. This thus creates a barrier in the
implementation of ITP in the countries and therefore impacts them a lot(Kuzheliev and
et.al., 2020).
2. Adoption of IT as a part of the package of the economic reforms- In the countries, the
adoption of IT is leading towards a lot of problems and issues in relation to the economic
reforms. This is creating a lot of problems and issues related to IT systems and thus affect
these systems a lot. This therefore creates an impact on the implementation of ITP in the
various countries.
3. Weak financial sector institutions and markets- In the countries, the financial sector
institutions have become very weak and therefore an impact has also been created on the
financial markets. Therefore, In this way it can be said that this impacting the economic
situation which is prevailing in the different countries. This thus affects the
implementation of ITP in the different countries.
4. Role of the exchange rate- The exchange rate is an important parameter as by making its
use the different types of economic decisions are made. In some countries, there are
various types of fluctuations which are witnessed regularly in the exchange rates which
therefore creates problems and issues in the implementation of ITP. Therefore, it can be
said that this creates an impact on the economic decision-making.
5. Lack of proper implementation of economic policy- Lack of implementation of proper
implementation of economic policy can create a particular level of impact on the different
types of decisions which are required to be taken and can create an impact on the
economic decision-making. Therefore, it can be said that it can affect the implementation
of ITP in the countries and can therefore create a particular level of impact on the
implementation of important decisions which are related with ITP. Thus, it can be said
that it affects the economic situation in a particular country.

The Effectiveness of the Inflation Targeting Policy13
Effectiveness of ITPin Developing Countries
The use of ITP has produced mixed results in the Developing Countries. While in some
countries it has resulted in an increase in the overall level of economic growth and development
in other countries it has created no significant impact on the economic growth rate. In the
Developing Countries, the inflation rate sometimes increases a lot which puts a lot of pressure on
the consumers as they have to shell out more amount of money out of their pockets so that they
are able to ensure that the expenditure level can be managed in an appropriate manner.
Therefore, In this way it can be said that the use of ITP is quite essential because it can be
helpful in the deriving of the conclusions and recommendations which are required for the
purpose of ensuring that the economic policy's use can be made so that the control on the level of
inflation can be maintained. Overall, it can be said that the use of ITP is effective in the
Developing Countries to control the rate of inflation.
In some of the Developing Countries the use of ITP failed because there was a lack of proper
planning in the implementation. Thus, it was unable to control the higher-level of rate of
inflation and thereby only added to the expenses of the Government.
However, In many Developing Countries, use of ITP has been very helpful in ensuring that the
higher rate of inflation in the economy can be controlled. In these countries through the use of
appropriate planning techniques the implementation of ITP has been successful in controlling
Inflation.
Criticism of the inflation targeting policy
The use of ITP policy also has to face criticism because of the different reasons. Some
policymakers also criticize making the use of ITP because of the following reasons-
 Rigidity- There can be rigidity in the use of ITP in the economic policies of the different
countries. Therefore, in some of the developing countries it affects the economic

The Effectiveness of the Inflation Targeting Policy14
decision-making because its rigidity tends to create an impact on the economic
performance(Ogrokhina and Rodriguez, 2018).
 Instability in the economic growth- Some economists tend to argue that there is an
instability in the economic growth when the use of ITP is made. Thus, it can be said that
the use of ITP tends to bring an instability in the economic growth level of the countries
and can create an impact on the overall level of economic performance.
 Unrealistic in nature- Economists argue that the use of ITP is also unrealistic
sometimes. This is so because sometimes it is unable to control the high rates of inflation.
Thus, it can be said that the ITP is not useful in this regard and tends to create an impact
on the level of economic growth in the countries.
 Against Development- Economists argue that the use of ITP is against the overall level
of development. Therefore, In this way it can be said that the policy is not able to create a
significant impact on the level of economic development and thus affects the decision-
making.
 Focuses only on the price level- The use of ITP is often made by solely concentrating on
the level of price which is prevailing within the economy. Thus, In this way it can be said
that the ITP ignores the changes which are brought in the level of output and thus in this
way this can impact the overall level of economic growth and development in the
countries which are making the use of this policy because changes in the output are also
required to be considered by the economists.
Neglects the other factors of an economy- There are several factors within the economy
of a country which create an impact on the overall level of production as well as output. These
are required to be considered in order to ensure that strong economic decisions can be taken.
Therefore, ITP neglects these factors which are prevalent in the economy by focusing solely on
the changes in the price level and therefore this affects the level of decision-making in the
economy.
Overview of the Turkish experience 2002-2020

The Effectiveness of the Inflation Targeting Policy15
Turkey has been experiencing a general social and economic growth in its economic
fronts leading to increased employments and earning the country an upper middle-income status.
Significantly, a few challenges owing to increasing economic vulnerabilities have threatened the
rate of economic growth undermining countries economic growth and development
achievements (McGann, 2019, pg. 4399). In 2002, the country was concerned with the
implementation of such measures to overcome economic vulnerabilities prevalent with specific
groups and vulnerable and disadvantaged regions of the country. The long-term focus and
implementation of ambitious reforms including positive development programs and projects
were geared towards maintaining the otherwise revered economic development(Glombitza,
2021, pg. 5).
In the beginning of 2002, the Central Bank of the Republic of Turkey i.e. CBRT
announced that the use of Inflation Targeting Policy will be made in order to control the rate of
inflation in the country and to make sure that the price levels can be kept within check.
Therefore, In this manner it can be said that the Turkish Experiment was related with ensuring
that a proper check on the level of inflation can be kept which will thus make sure that the targets
which are set can be attained. This will help in channelizing the higher-level of growth of the
economy in the future thereby helping in the attainment of the required level of growth quite
effectively and efficiently in the right way. Thus, it was found that the adoption of the ITP will
be helpful in ensuring that the rate of inflation can be kept in check in the right manner(Okimoto,
2019).

The Effectiveness of the Inflation Targeting Policy16
The Instability in Turkish Economy in The Last Years

The Effectiveness of the Inflation Targeting Policy17
The Turkish economy has experienced recent ups and downs, with a turning point around
2007. These are not embodiments of a typical cycle experienced by many developing countries,
including Turkey in the past, but the repercussions of a first phase of structural reforms and
numerous improvements in economic institutions, and then a total turn around in a second phase
during which all of these improvements were reversed.
There were many reasons due to which instability was created in the Turkish Economy.
The political reasons were Military Coup attempt, the flight of a large number of capital after the
attempted coup and political turmoil and the political tension surrounding the coup. The
technical reasons were Government investments on long-term projects, Continuing deficit and
Real reform in the state institutions. Therefore, due to the influence of these reasons the Turkish
Economy grew at low growth rate which created a higher-level of impact on the inflation rate
also. Thus, in this way it can be said due to the steps which were taken by the Turkish
Government the Turkish Economy grew at higher growth rate which can thereby help in the
attainment of the goals and objectives in the future.
Changing the Governor of the Central Bank in last years three times.
Turkish President Tayyip Erdogan fired central bank governor Naci Agbal, making him
the third governor to be ejected from office in a span of two years. The bone of contention was
the changes in interest rates where the president advocated openly for lower interest rates while
Agbal in his position as the central bank governor pushed for higher interest rates. Agbal’s
dismissal from his position was uncalled for due to his assertion that higher interest rates would
help curb the rising inflation rates and the fall in their currency, lira. The frequent change in the
Governors of the Central Bank over the last few years has affected the Turkish Economy because
the policy-making has been deeply impacted due to the impact created by the frequent change of

The Effectiveness of the Inflation Targeting Policy18
Governors. Therefore, In this way it can be said that the decision-making in the Turkish
Economy has been highly impacted as a result(Soe and Kakinaka, 2018).This can lead towards
instability in the Central Bank and hurts its autonomy and therefore affects the major decisions
which it is taking like ITP. Therefore, it is essential that the Government should give a certain
level of autonomy to the Central Bank which helps in taking its own decisions.
Turkish Monetary Policy 2002-2020
In the Turkish Monetary Policy 2002-2020, the main focus is on ITP. This is so because
the rate of inflation had increased a lot in the country and it was necessary to take the appropriate
steps in order to control it and regulate it so that the control on the inflation can be done in a
proper manner. Therefore, in this way it can be said that the Turkish Policy can be helpful in
controlling the rate of inflation and helping the economy get back on track with a higher growth
rate.
Main challenges of Turkish Monetary Policy
The main challenges were Keeping inflation in the target range, Bringing an
improvement in the currency value, Decreasing the deficit in the trading balance, Returning the
trust to forging investors to return back, Doing improvements in the economy structure and
Removing the bureaucracy procedures and making the improvements. Therefore, it was quite
important for the Turkish Government that the solutions to these particular challenges were
found which could be highly helpful in ensuring taking of the appropriate actions effectively and
efficiently as a result(Taylor, 2019).
Dealing with these challenges was quite important in the Turkish Economy because the
Turkish Government had to make sure that the overall restructuring of the economy can be

The Effectiveness of the Inflation Targeting Policy19
carried out which will help a lot in controlling the rate of inflation. Thus, The Government of
Turkey decided that it will make the use of restructuring of the economy which will help in
ensuring that the rate of inflation can be kept in check. In this way, The Government of Turkey
hopes that it will be able to meet out all of these challenges and thus it will be able to make sure
that the appropriate goals and objectives for the future will be attained quite effectively and
efficiently which will help in dealing with these challenges.
The Turkish Economy has also faced the condition where its economic growth rate was
impacted because of the impact which was created by the pandemic. However, the economy is
now showing positive signs of growth and therefore in this way shows a lot of promise to grow
in the future and therefore this will help it a lot in ensuring that it can attain its goals and
objectives in a right way effectively and efficiently.
Why Turkish Economy Couldn’t Control the Variance In Inflation
The Turkish Economy could not control the variance in inflation because there was no
appropriate planning which was done to set the targets for the inflation rate so that it can be kept
in check and the inflation rate can be controlled in a better way in the economy. There was
instability in the economy which clearly affected the growth rate and also the infrastructural
development was not done in a proper manner earlier on which affected the economy badly. The
variances in inflation were not controlled which led towards higher rates of inflation and an
increase in the general price level within the country. Thus, it can be said that the overall
economic growth was impacted as a result.

The Effectiveness of the Inflation Targeting Policy20
What Inflation Targeting hasbeen adopted
The rate of inflation in Turkey prior to the adoption of the ITP had increased a lot which
was creating a lot of problems for both the Government as well as Citizens of the country.
Therefore, it can be said that the adoption of this particular policy is quite essential so that the
particular targets can be set for the purpose of controlling the rate of Inflation highly effectively
and efficiently which will ultimately help a lot in ensuring that the control on Inflation can be
kept in the right manner. Therefore, through the use of ITP it can be said that the appropriate
control on the rate of Inflation can be kept in a highly effective manner which will help in
managing the General Price Levels in a proper manner.When the annual inflation rate soared to
68% it was decided that the use of ITP has to be made so that the inflation can be kept within
check and the General Price Levels of the goods and services in the country can be managed
which will help in the attainment of the goals and objectives in the future in the right manner.
Through the implementation of ITP, The Government of Turkey was able to make sure that the
control on the rate of Inflation can be maintained in the future and therefore the price levels of
the products and services can be kept in check.
Due to the influence created by multiple factors, the Turkish Economy was not able to
control the rate of inflation in the country and therefore in this way this affected the economy
quite badly. Therefore, in this way it can be said that the Turkish Economy was affected by
higher rate of inflation badly which increased the General Price Levels in the country. However
since the last few years particularly from the year 2017 the inflation rate in the country is not in
check which is creating an impact on the General Price Level in the country. Therefore, it will
affect the overall situation which is prevailing in the country. Therefore, it can be said that the

The Effectiveness of the Inflation Targeting Policy21
Turkish Government has to take those steps which will help it in ensuring that the goals and
objectives in the future can be attained.
Assessing the Inflation Targeting Policy in Turkey
The implementation of ITP in Turkey has been quite successful as it has helped in
lowering the rate of Inflation in the country thereby keeping the General Price Levels in check.
Therefore, it can be said that through the use of ITP, the Turkish Government was able to ensure
that it was able to overcome the challenges which were posed by Inflation and thus it was quite
helpful in ensuring that through its use the overall rate of Inflation can be kept within check
which will thereby help a lot in managing the rise in the General Price Levels in the country.
Over the last three years, the Turkish Economy has not been able to control the rate of
inflation and thus it needs to identify the mistakes which are being made in the policy
implementation and therefore ensure that the use of appropriate methods and techniques can be

The Effectiveness of the Inflation Targeting Policy22
made so that a control on the rate of inflation in the country can be done which will be quite
helpful in managing the inflation rate in the right manner.
CONCLUSION
From the above report, it can be concluded that Inflation Targeting Policy is a policy which can
be used by the Governments of the countries in order to control the rate of inflation in the
economy. It is quite important that the use of ITP is done after making plans regarding the same
which will be quite helpful in order to ensure that the Inflation rate can be managed in the right
manner. Thus, it can be said that the use of ITP can be very helpful in ensuring that the
management of the higher rates of Inflation can be done and thus the use of appropriate methods
and techniques can be made so that the higher rates of inflation can be kept in check and the
actions can be taken accordingly. In this way the level of inflation can be managed within the
economy which will provide a lot of relief to the customers and thus in this way will help in
channelizing the economy towards a higher-level of growth in the future which will be very
helpful in attaining the short-term, medium-term and long-term goals and objectives in a right
way quite effectively and efficiently in the future.
- The ITP is one of the ways for the central bank to control the rate of inflation in the short
term and to achieve price stability in the long term.
- For the inflation targeting policy to succeed, there are several conditions that must be
met, the most important of which is the independence of the central bank and then
stability in the economy with an existing infrastructure that serves the goals, because the
absence of any of them does not guarantee obtaining the required results.

The Effectiveness of the Inflation Targeting Policy23
- The inflation targeting policy is not without some real criticisms, the most important of
which is the ability of the Central Bank to predict and set policies for economic shocks.
- We noticed success at the beginning of the Turkish experience, but in recent years the
government lost control of inflation and the central bank was unable to set a clear and
strong policy as the size of the turmoil in the economy was greater than the central bank
policy makers' expectations.
Recommendations:
1. - Continuing to follow the ITP as it has achieved success in many countries, and even
those that have not succeeded completely have achieved partial success.
2. - Work to reform the infrastructure and IT network and improve central banks tools for
prediction and expectation.
3. Working on comprehensive reform in all state agencies and combating bureaucracy and
corruption, thus restoring a sense of security to the foreign investor, thus returning the
flow of foreign investment funds and reviving Projects, and increasing the amount of
available foreign currency.
4. - Work to reduce the deficit in the trade balance, the most important tool of which is to
increase the volume of exports, because the deficit in the trade balance is one of the
reasons that impede the success of using this policy which leads towards difficulties.

The Effectiveness of the Inflation Targeting Policy24
REFERENCES
Books and Journals:
Abuselidze, G., 2019. Modern challenges of monetary policy strategies: inflation and
devaluation influence on economic development of the country. Abuselidze, G.(2019).
Modern Challenges of Monetary Policy Strategies: Inflation and Devaluation Influence on
Economic Development of the Country. Academy of Strategic Management Journal, 18(4).
Adler, G., Lama, R. and Medina, J.P., 2019. Foreign exchange intervention and inflation
targeting: The role of credibility. Journal of Economic Dynamics and Control. 106.
p.103716.
Aguirre, H and N Grosman (2010): “A note on managed floating in a small economic
model”, paper presented at the XLV annual meeting of the Argentine Economic Association,
Buenos Aires.
Aguirre, H and T Burdisso (2008): “Dangerous liaisons? An empirical assessment of
inflation targeting and exchange rate regimes”, Central Bank of Argentina Working Paper
Series, no 2008-39.
Ardakani, O.M., Kishor, N.K. and Song, S., 2018. Re-evaluating the effectiveness of
inflation targeting. Journal of Economic Dynamics and Control. 90. pp.76-97.
Barkley, D. (2008) ‘Evaluations of regional competitiveness: making a case for case studies’,
The Review of Regional Studies, Vol. 38, No. 2, pp.121–143.
Berganza, J and C Broto (2012): “Flexible inflation targets, forex interventions and exchange
rate volatility in emerging countries”, Journal of International Money and Finance, vol 31, pp
428–44.

The Effectiveness of the Inflation Targeting Policy25
Bernanke, B, T Laubach, F Mishkin and A Posen (1999): Inflation Targeting: Lessons from
the International Experience, Princeton University Press.
Bilici, B. and Çekin, S.E., 2020. Inflation persistence in Turkey: A TVP-estimation
approach. The Quarterly Review of Economics and Finance, 78, pp.64-69.
Buffie, E.F., Airaudo, M. and Zanna, F., 2018. Inflation targeting and exchange rate
management in less developed countries. Journal of International Money and Finance. 81.
pp.159-184.
Ceylan, N.B., Berument, H. and Varlik, S., 2018. Assessing the effects of a policy rate shock
on market interest rates: interest rate pass-through with a FAVAR model–the case of Turkey
for the inflation-targeting period. Journal of Money, Investment and Banking, (30).
Chen, W. and Creamer, K., 2019. An empirical analysis on the effects of the inflation
targeting framework on monetary policy in South Africa. South African Journal of
Economics. 87(4). pp.450-463.
Clarida, R.H., 2020. The Federal Reserve's Review of Its Monetary Policy Strategy, Tools,
and Communication Practices. Cato J., 40, p.255.
D. Reifschneider, R. Tetlow, J. WilliamsAggregate disturbances, monetary policy, and the
macroeconomyFederal Reserve Bulletin, 85 (January) (1999), pp. 1-19
Erdal, B., 2018. The nexus between monetary variables and economic growth under inflation
targeting regime: Empirical evidence from Turkey. International Research Journal of
Applied Finance, 9(10), pp.435-444.
Ertuğrul, K. and AkcalıYılmaz, Ö., 2018. The Otherness of Turkey in European
Integration. Turkish Studies, 19(1), pp.48-71.
Fouejieu, A., 2017. Inflation targeting and financial stability in emerging markets. Economic
Modelling, 60, pp.51-70.
Fouejieu, A., 2017. Inflation targeting and financial stability in emerging markets. Economic
Modelling. 60. pp.51-70.

The Effectiveness of the Inflation Targeting Policy26
Glombitza, O., 2021. From exceptionalism to normalization: the radical transformation of the
Republic of Turkey. Turkish Studies, pp.1-9.
Güney, P.Ö., 2018. Asymmetries in monetary policy reaction function and the role of
uncertainties: the case of Turkey. Economic research-Ekonomskaistraživanja, 31(1),
pp.1367-1381.
Hammond, Gill. 2011. “State of the Art of Inflation Targeting.” Centre for Central Banking
Studies Handbook—No. 29
Hatcher, M. and Minford, P., 2016. Stabilisation policy, rational expectations and price‐level
versus inflation targeting: A survey. Journal of Economic Surveys. 30(2). pp.327-355.
Hossain, A.A. and Arwatchanakarn, P., 2017. Does money have a role in monetary policy for
price stability under inflation targeting in Thailand?. Journal of Asian Economics. 53. pp.37-
55.
Kadria, M. and Aissa, M.S.B., 2016. Inflation targeting and public deficit in emerging
countries: A time varying treatment effect approach. Economic modeling. 52. pp.108-114.
Karahan, Ö., 2018. How the Changes in Exchange Rate Affect the Turkish Economic
Growth underBulut, U., 2019. Does the Central Bank of the Republic of Turkey Respond
Asymmetrically to Inflation and Output? Margin: The Journal of Applied Economic
Research, 13(4), pp.381-400. Inflation Targeting Regime? European Financial Systems
2018, p.235.
Kartaev, P., 2017. Is inflation targeting useful for economic growth?. VOPROSY
ECONOMIKI. 2.
Kayıkçı, F. and Kaplan, S., 2019. Inflation Targeting in Turkey. Theoretical Economics
Letters, 9(07), p.2217.
Kuzheliev, M. and et.al., 2020. The impact of inflation targeting on macroeconomic
indicators in Ukraine.
Locarno, A. and Locarno, A., 2021. Is inflation targeting a strategy past its sell-by
date? (No. 1316). Bank of Italy, Economic Research and International Relations Area.

The Effectiveness of the Inflation Targeting Policy27
McGann, J.G., 2019. Turkey: An Overview. In Think Tanks, Foreign Policy and the
Emerging Powers (pp. 399-404). Palgrave Macmillan, Cham.
Murat U., Daron Acemoglu, 2021. The ups and down of Turkish growth, 2002-2005:
political dynamics, the European union and the institutional slide.
Ogrokhina, O. and Rodriguez, C.M., 2018. The role of inflation targeting in international
debt denomination in developing countries. Journal of International Economics. 114. pp.116-
129.
Okimoto, T., 2019. Trend inflation and monetary policy regimes in Japan. Journal of
International Money and Finance. 92. pp.137-152.
Orphanides, A., 2019, August. Monetary policy strategy and its communication. In Federal
Reserve Bank of Kansas City 2019 Jackson Hole Economic Policy Symposium, Challenges
for Monetary Policy, Jackson Hole, August (pp. 22-24).
Özdemir, M., 2020. The role of exchange rate in inflation targeting: the case of
Turkey. Applied Economics, 52(29), pp.3138-3152.
Roger, Scott. 2010. “Inflation Targeting Turns 20.” Finance & Development. March: 46–49
Soe, T.T. and Kakinaka, M., 2018. Inflation targeting and exchange market pressure in
developing economies: Some international evidence. Finance Research Letters. 24. pp.263-
272.
Svensson, L.E., 1999. Inflation targeting as a monetary policy rule. Journal of monetary
economics, 43(3), pp.607-654.
Taş, H., 2020. The formulation and implementation of populist foreign policy: Turkey in the
Eastern Mediterranean. Mediterranean Politics, pp.1-25.
Taylor, J (2001): “The role of the exchange rate in monetary-policy rules”, American
Economic Review, vol 91, no 2, pp 263–67.
Taylor, J.B., 2019. Inflation targeting in high inflation emerging economies: Lessons about
rules and instruments. Journal of Applied Economics. 22(1). pp.103-116.
Thornton, J. and Vasilakis, C., 2017. Inflation targeting and the cyclicality of monetary
policy. Finance Research Letters. 20. pp.296-302.

The Effectiveness of the Inflation Targeting Policy28