The independence of central bank in view of Rogoff: The Turkish experience

According to Rogoff, economic variables may fluctuate due to changes in economic policies. In the long run, economic policies result in increases in fluctuations in inflation rate without increasing average outp level. From the perspective of Rogoff, problems regarding inflation instability can be overcame by giving the authority of making monetary policy to an independent institution. This study analyzes "legal independency" of the CBRT according to the theoretical framework developed by Rogoff. In addition, we tested independency of the CBRT by using Cukierman index, and concluded that independency of the CBRT has increased after a new law introduced in April 2001. Our econometric tests indicated that there is a negative relationship between inflation rate and independency of the CBRT. We could not find, however, any evidence to accept or reject the hypothesis of "an independent central bank results in a stable output level."