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The readiness of central bank to adhere to a rule of monetary policy has always been one of the topics discussed in the economic literature. Policy decisions undertaken by monetary authorities in uncertain and unpredictable environments are the main reason for this debate. According to the Taylor Rule, that holds the rules and discretionary policies, the policy rate of the central bank is necessary to be determined in such a way that it provides a balance between the financial and the real sector that will increase foreign exchange inflows and not reduce investment expenditures. Therefore, the study examines the validity of the extended Taylor Rule for Turkish economy using the GMM method for the period 2001: 08-2017: 09. This method is preferred because its advantage to achieve strong and consistent coefficients even under weak assumptions, is based on strong assumptions that depend on the consistency of estimators. Findings obtained as a result of Taylor rule analysis support the studies in the literature and suggest that the rule is apparently valid in economies with low inflation rates and stable growth rates. In this context, in the absence of support for the Taylor rule, the TCMB should determine a policy rate that will provide internal and external equilibrium, and in doing so, the inflation-deficit variable should be used as an indicator.

An Analysis of Turkey to Taylor Rule in the Context of Rule-Based and Discretionary Monetary Policy Debate