Expectations, Communication And Monetary Policy In Turkey

This paper analyzes the behavioral aspects of inflation expectations in Turkey by utilizing data from a panel of survey respondents, and draws implications for the formulation of monetary policy and communication strategy. The authors' results lend support to the view that the survey respondents take the inflation targets and the official forecasts of the Central Bank of Turkey into account in forming their expectations. They show that inflation expectations during the rapid disinflation episode of 2002-2005 were firmly anchored by the announced targets. Yet, the weight attached to past inflation and the sensitivity of inflation expectations to variables such as exchange rates and the risk premia seem to have increased in recent years.