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In the past two decades, Turkey has experienced multiple changes in its monetary policy regime. To analyse how these policy changes affect the behaviours of households and firms, some behavioural parameters are incorporated into a small open economy New Keynesian model. Our approach consists of four phases. First, we assess the impacts of the behavioural parameters on the model and find that higher values of the parameters increase the effects of expectations on the model. Second, for the period between 2006 and 2021, the model is estimated for the Turkish economy and the findings show that both households and firms are more forward-looking in their decision making. Moreover, the current variables have a weak effect on the nominal interest rate, and the inertial nominal interest rate has a strong effect on it. Third, we analyse the evolution of the model parameters over the period and find that the behavioural parameters tend to increase, while the monetary policy becomes more inertial. Finally, we conclude that the Central Bank should follow Domestic Inflation-based Taylor rule to minimise welfare loss. [ABSTRACT FROM AUTHOR]

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Copyright of Boğaziçi Journal: Review of Social, Economic & Administrative Studies is the property of Bogazici University, Faculty of Economics & Administrative Sciences and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)