Essays on Turkish monetary policy

Since the 1990s inflation targeting has become the prevalent monetary policy paradigm. This "new monetary policy" has four major features: a numerical and official inflation target, interest rate as the sole policy tool, central bank independence and no other objectives for policy but inflation control. NMP is criticized for ignoring many channels of monetary transmission, having undesirable effects on the distribution of income and compromising sovereign development policy. This dissertation investigates where Turkey stands in relation to this critique of inflation targeting in developing countries.;The second essay "A Monetary Conditions Index for Turkey" addresses the question "Is there a way to acknowledge exchange rate effects in the existing NMP framework?" One way to do this is to use a Monetary Conditions Index as the intermediate target or as an information variable in monetary policy. Two MCIs for the Turkish economy are developed based on the generalized accumulated impulse responses of real output growth and inflation to interest rate and exchange rate shocks. The growth responses based MCI tracks business cycle swings with a lead while the inflation responses based MCI successfully reflects the monetary policy stance.;The third essay "Growth and Distribution under Inflation Targeting" addresses the question "What are the implications of NMP for growth and distribution in developing countries?" A simple conflict inflation model of growth for a small open economy is developed and it is shown that the high real interest rate implied by IT is detrimental to profitability and growth in the long run. Moreover capital flows exacerbate this effect. Distribution is likely to shift in favor of import processing industries and finance capital at the expense of labor and domestic producers, as a result of IT.;The first essay "Divisia Measures of Currency and Asset Substitution for Turkey" addresses the question "Has NMP reversed the dollarization trend in Turkey?" Theoretically consistent distinct measures of asset and currency substitution based on the Divisia literature are developed. Standard asset and currency substitution hypotheses as well as the hysteresis hypothesis are tested in a cointegrated VAR framework. Empirical results point to irreversibility in currency substitution.