Advanced Search
MyIDEAS: Login to save this article or follow this journal

Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey

Contents:

Author Info

  • Hasanov, Mübariz
  • Araç, Aysen
  • Telatar, Funda

Abstract

In this paper, we investigate possible nonlinearities in the inflation-output relationship in Turkey for the 1980-2008 period. We first estimate a linear bivariate model for the inflation rate and output gap, and test for linearity of the estimated model against nonlinear alternatives. Linearity test results suggest that the relationship between the inflation rate and output gap is highly nonlinear. We estimate a bivariate time-varying smooth transition regression model, and compute dynamic effects of one variable on the other by generalized impulse response functions. Computed impulse response functions indicate that inflation-output relationship in Turkey during the analyzed period was regime dependent and varied considerably across time.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VB1-4YW37J1-1/2/1c148488312ec55f8f35ce722f1f7f02
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 5 (September)
Pages: 1103-1115

as in new window
Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:1103-1115

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Phillips curve Nonlinearity Structural stability;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  2. Joseph V. Balagtas & Matthew T. Holt, 2009. "The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(1), pages 87-105.
  3. Weise, Charles L, 1999. "The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(1), pages 85-108, February.
  4. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(1), pages 191-205, February.
  5. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, Springer, vol. 7(1), pages 5-18, January.
  6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  7. Franses, Ph.H.B.F. & van Dijk, D.J.C., 2001. "The forecasting performance of various models for seasonality and nonlinearity for quarterly industrial production," Econometric Institute Research Papers EI 2001-14, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  8. Sbordone, Argia M, 2006. "U.S. Wage and Price Dynamics: A Limited-Information Approach," MPRA Paper 811, University Library of Munich, Germany.
  9. Laurence Ball & N. Gregory Mankiw, 1992. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
  10. Guy Debelle & Douglas Laxton, 1997. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 249-282, June.
  11. repec:fth:harver:1418 is not listed on IDEAS
  12. Robert Sollis, 2004. "Asymmetric adjustment and smooth transitions: a combination of some unit root tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(3), pages 409-417, 05.
  13. Alberto Musso & Livio Stracca & Dick van Dijk, 2009. "Instability and Nonlinearity in the Euro-Area Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 181-212, June.
  14. Tsiddon, Daniel, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(4), pages 889-902, October.
  15. Michael Arghyrou & Christopher Martin & Costas Milas, 2005. "Non-linear inflationary dynamics: evidence from the UK," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 51-69, January.
  16. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 451-72, June.
  17. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  18. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  19. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
  20. James H. Stock & Mark W. Watson, 1994. "Evidence on structural instability in macroeconomic times series relations," Working Paper Series, Macroeconomic Issues 94-13, Federal Reserve Bank of Chicago.
  21. Öcal Nadir, 2000. "Nonlinear Models for U.K. Macroeconomic Time Series," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(3), pages 1-15, October.
  22. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  23. Sel Dibooglu & Aykut Kibritcioglu, 2003. "Inflation, Output Growth, and Stabilization in Turkey, 1980-2002," Macroeconomics, EconWPA 0306001, EconWPA.
  24. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(4), pages 1261-82, November.
  25. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  26. Yazgan M. Ege & Yilmazkuday Hakan, 2005. "Inflation Dynamics of Turkey: A Structural Estimation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-15, March.
  27. Christopher Martin & A. Nazif Çatik & A. Özlem Onder, 2011. "Relative price variability and the Phillips Curve: evidence from Turkey," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 38(5), pages 546-561, November.
  28. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  29. Robert J. Gordon, 1977. "Can the Inflation of the 1970s be Explained?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 253-279.
  30. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 240-43, May.
  31. Dijk, Dick van & Franses, Philip Hans, 1999. "Modeling Multiple Regimes in the Business Cycle," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 3(03), pages 311-340, September.
  32. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Price Expectations and the Phillips Curve," American Economic Review, American Economic Association, American Economic Association, vol. 59(3), pages 342-50, June.
  33. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  34. A. Özlem Önder, 2004. "Forecasting Inflation in Emerging Markets by Using the Phillips Curve and Alternative Time Series Models," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 40(2), pages 71-82, March.
  35. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9807, Universite de Montreal, Departement de sciences economiques.
  36. Yaman Asikoglu & Merih Uctum, 1991. "A critical evaluation of exchange rate policy in Turkey," Research Paper 9116, Federal Reserve Bank of New York.
  37. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  38. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers, Princeton, Department of Economics - Econometric Research Program 338, Princeton, Department of Economics - Econometric Research Program.
  39. Lundbergh, Stefan & Teräsvirta, Timo & van Dijk, Dick, 2000. "Time-Varying Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 376, Stockholm School of Economics.
  40. Donald P. Morgan, 1993. "Asymmetric effects of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 21-33.
  41. Erdinc Telatar & Mubariz Hasanov, 2009. "Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(2), pages 157-173.
  42. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, Elsevier, vol. 62(2), pages 211-228, June.
  43. Khalaf, Lynda & Kichian, Maral, 2005. "Exact tests of the stability of the Phillips curve: the Canadian case," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 49(2), pages 445-460, April.
  44. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  45. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  46. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
  47. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers, National Institute of Economic and Social Research 164, National Institute of Economic and Social Research.
  48. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, Elsevier, vol. 112(2), pages 359-379, February.
  49. Karras, Georgios, 1996. "Are the Output Effects of Monetary Policy Asymmetric? Evidence from a Sample of European Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 267-78, May.
  50. Sollis, Robert, 2008. "U.S. dollar real exchange rates: Nonlinearity revisited," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(4), pages 516-528, June.
  51. Schaling, E., 1998. "The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules," Discussion Paper, Tilburg University, Center for Economic Research 1998-136, Tilburg University, Center for Economic Research.
  52. Hasanov, Mübariz & Omay, Tolga, 2008. "Monetary policy rules in practice: Re-examining the case of Turkey," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 387(16), pages 4309-4318.
  53. Mubariz Hasanov & Tolga Omay, 2008. "Nonlinearities in emerging stock markets: evidence from Europe's two largest emerging markets," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 40(20), pages 2645-2658.
  54. Javier Andrés & Ignacio Hernando, 1999. "Does Inflation Harm Economic Growth? Evidence from the OECD," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 315-348 National Bureau of Economic Research, Inc.
  55. Yash P. Mehra, 2004. "Predicting the recent behavior of inflation using output gap-based Phillips curves," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 65-88.
  56. Erdinc Telatar & Mubariz Hasanov, 2006. "The asymmetric effects of monetary shocks: the case of Turkey," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(18), pages 2199-2208.
  57. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 371-79, April.
  58. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, American Economic Association, vol. 77(4), pages 647-66, September.
  59. Matthew T. Holt & Lee A. Craig, 2006. "Nonlinear Dynamics and Structural Change in the U.S. Hog—Corn Cycle: A Time-Varying STAR Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 88(1), pages 215-233.
  60. Funda Telatar & Erdinc Telatar, 2003. "The relationship between inflation and different sources of inflation uncertainty in Turkey," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(7), pages 431-435.
  61. Ho-Chuan (River) Huang & Ya-Kai Chang, 2005. "INVESTIGATING OKUN's LAW BY THE STRUCTURAL BREAK WITH THRESHOLD APPROACH: EVIDENCE FROM CANADA," Manchester School, University of Manchester, vol. 73(5), pages 599-611, 09.
  62. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 433-494.
  63. Andrew J. Filardo, 1998. "New evidence on the output cost of fighting inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q III.
  64. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(2), pages 450-68, May.
  65. Telatar, Erdinc & Telatar, Funda & Ratti, Ronald A., 2003. "On the predictive power of the term structure of interest rates for future inflation changes in the presence of political instability: the Turkish economy," Journal of Policy Modeling, Elsevier, Elsevier, vol. 25(9), pages 931-946, December.
  66. Laxton, Douglas & Rose, David & Tambakis, Demosthenes, 1999. "The U.S. Phillips curve: The case for asymmetry," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(9-10), pages 1459-1485, September.
  67. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  68. Robert J. Gordon, 1970. "The Recent Acceleration of Inflation and Its Lessons for the Future," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1), pages 8-47.
  69. David Romer, 1993. "The New Keynesian Synthesis," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 5-22, Winter.
  70. Rothman, Philip & van Dijk, Dick & null, Philip Hans, 2001. "Multivariate Star Analysis Of Money Output Relationship," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(04), pages 506-532, September.
  71. Yesim Kustepeli, 2005. "A comprehensive short-run analysis of a (possible) Turkish Phillips curve," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(5), pages 581-591.
  72. Jackman, Richard & Sutton, John, 1982. "Imperfect Capital Markets and the Monetarist Black Box: Liquidity Constraints, Inflation and the Asymmetric Effects of Interest Rate Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(365), pages 108-28, March.
  73. Nobay, A. R. & Peel, D. A., 2000. "Optimal monetary policy with a nonlinear Phillips curve," Economics Letters, Elsevier, Elsevier, vol. 67(2), pages 159-164, May.
  74. Canova, Fabio, 2007. "G-7 Inflation Forecasts: Random Walk, Phillips Curve Or What Else?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 11(01), pages 1-30, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Go Tamakoshi & Shigeyuki Hamori, 2012. "Informational roles of commodity prices for monetary policy: evidence from the Euro area," Economics Bulletin, AccessEcon, vol. 32(2), pages 1282-1290.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:1103-1115. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.