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Inflation Expectation Dynamics: A Structural Long-run Analysis for Turkey

Author

Listed:
  • El in Ayka Alp

    (Faculty of Business, Department of Economics/Economics and Finance Research and Implementation Center, Istanbul Commerce University, Istanbul, Turkey,)

  • Zeynep Biyik

    (Project assistant in Istanbul Commerce University, Economics and Finance Research and Implementation Center, Istanbul, Turkey.)

Abstract

This study analyses the relationship between inflation and inflation expectations for the period from 2006 to 2017 with monthly data for Turkey. We used current month inflation expectations, inflation expectations for 1 month ahead and inflation expectations for 2 months ahead. Those three expectations give us the chance to understand the effect of time on expectations and also understand how well the economic agents generate or change their expectations in time. We used TAR-VEC model for testing the long run relationship between the variables that we take into consideration. This method is selected because of the threshold structure of variables in this analyzing period. Our empirical findings show that inflation has positive effect on inflation expectations for current month. However expected inflation values for 1 and 2 months ahead are effected negatively from inflation realizations.

Suggested Citation

  • El in Ayka Alp & Zeynep Biyik, 2018. "Inflation Expectation Dynamics: A Structural Long-run Analysis for Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 350-356.
    • Handle: RePEc:eco:journ1:2018-02-43
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    More about this item

    Keywords

    Inflation; Inflation Expectations; TAR-VEC Model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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