ESKISEHIR OSMANGAZI UNIVERSITESI IIBF DERGISI-ESKISEHIR OSMANGAZI UNIVERSITY JOURNAL OF ECONOMICS AND ADMINISTRATIVE SCIENCES, vol.17, no.1, pp.256-271, 2022 (ESCI)
In Turkey, monetary policy responds to cost shocks rather than the inflation gap and output gap. To clarify this policy, we estimate the linear and non-linear Taylor rule using the Threshold GMM for 2006:01-2020:07. The linear model estimates that the policy rate responds significantly to the inflation gap and the real effective exchange rate. The non-linear model captures that monetary policy differs in regimes where imported goods and input prices are set as high and low. In a high price regime, monetary policy also reacts to cost-push shocks. The response of monetary policy to the exchange rate implicitly leads to "a leaning against the wind".