A TEST FOR ASYMMETRIC CENTRAL BANK PREFERENCES INTURKEY

The time inconsistency based KPBG models that triedto explain the inflation biaslost their popularity as inconsistent Central Bankbehaviors changed in time.However, high inflation for countries like Turkey is still a problem and a newtheory to explain this ‘time consistent’ inflationbias is in need. A theory based onnon-linear or asymmetric Central Bank behavior is developed during the lastdecade to fill this gap. One way to test the empirical validity of the theorem isbased on a Taylor Rule variant asymmetric model. This model is tested here forTurkey as it is one of the inflation targeting countries roughly for the last tenyears