Central Bank transparency and inflation targeting: A policy performance analysis for Turkey

In the wake of recent global financial crisis, growing emphasis has been put on central bank reliability and transparency, especially for the developing countries. In our paper, we built a macroeconomic model to test the impact of central bank reliability on the inflation targeting performance by the bank. To this end, we utilized the indexes developed by Cukierman et.al.(1993); and Dincer and Eigenberg (2013) to calculate a measure of Turkish Central Bank reliability for the past two decades, and ran a multi-equation time series regression to analyze the effect of institutional independence and transparency on inflation targeting performance, while controlling for other macroeconomic indicators that impact inflation. We found that higher degrees of perceived transparency of the central bank has a positive effect on the inflation targeting performance. Also, transparency seems to be a better proxy for the overall institutional change the Turkish economy experienced in the last two decades.