Inflation Persistance and Credibility in Turkey During the Nineties

Abstract

This study assesses the credibility of disinflation programs in Turkey during the nineties, where several programs of reform took place. We investigate the credibility of these policies building on a previous research made by Agenor and Taylor (1993). The model is based on two assumptions: (i) inflation is a serially correlated process; (ii) the definition of a proxy that is able to measure the degree of credibility of a programme. The empirical results show that there was a sharp loss of credibility at the end of the 1991 and at the beginning of the 1994 and during the Asian crisis. The Program that the Central Bank implemented after the crisis was able to increase the level of credibility of the CBRT policies. Loss of credibility is registered during the end of the 1995, while various political events took place and during the 1997 following the world economic conditions and the outflow of capitals.