The Anchoring of Inflation Expectations in Turkiye: Evidence from the Orthodox Policy Shift

Abstract

This study examines whether inflation expectations in Turkiye have re-anchored following the Central Bank of the Republic of Turkiye’s (TCMB) return to orthodox monetary policy in June 2023. Using monthly survey data (2013:01–2026:01, 157 observations), we apply the Bomfim-Rudebusch anchoring test, an expectation formation model, and rolling window regressions. During the unorthodox easing period (2019–2023), expectations were significantly de-anchored (\beta = 0.342, p < .05) and adaptive. Under orthodoxy, the surprise-revision link becomes insignificant (\beta = 0.500, p = .10) and realised inflation no longer predicts expectations, which is suggestive of early re-anchoring among market participants, though limited sample size constrains statistical power. However, household 12-month inflation expectations remain elevated (orthodox-period average: 67%), revealing a persistent credibility gap. These findings suggest that orthodox policy is necessary but insufficient for full credibility restoration, and that targeted communication strategies are needed to bridge the household-market participant divide.

Keywords

• Inflation expectations
• Anchoring
• Monetary Policy
• Central Bank Credibility

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