The purpose of this study is to determine the validity of Policy Ineffectiveness Proposition (PIP) for the study period in which Inflation Targeting policy is kept transparent and accountability at the forefront. In the study, seasonally adjusted and seasonally unadjusted data was analyzed with Cobb-Douglas Production Function (CDPF), Lucas Aggregate Supply Function (LASF), Variance Autoregressive (VAR) and Impulse-Response Functions. Expectations series are calculated using the real expectations data obtained from the surveys conducted across the public and private sectors by the central banks.

The simultaneous effects of anticipated and unanticipated expectations of inflation and exchange rate on real output are tested using CDPF and LASF. In general, the results obtained from CDPF and LASF do not support the PIP. Looking at the results of VAR analysis, it has been determined that coefficients of anticipated expectations and some unanticipated expectations are significant. The results of Impulse-Response analysis have shown that any innovation or shock in unanticipated expectations leads to an increase in anticipated expectations of inflation. In addition, in the case of a new innovation or shock in the set of information available about the anticipated expectations, it can be said that it takes between five and eight months for the real sector to incorporate this update. The results of VAR and Impulse-Response analysis also do not support the PIP.