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Relative price variability and the Phillips Curve: evidence from Turkey

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Author Info

  • Christopher Martin
  • A. Nazif Çatik
  • A. Özlem Onder

Abstract

Purpose – Using data from Turkey, this paper seeks to investigate whether relative price changes can help to explain the Phillips Curve relationship between inflation and output. Design/methodology/approach – Building on work by Ball and Mankiw, the paper includes measures of the variance and skews of relative price adjustment in an otherwise standard model of the Phillips Curve. It employs a bounds-testing approach based on an ARDL model to establish long-run relationships. It then uses error correction models to analyze short-run dynamics. Findings – No evidence was found for a long-run relationship between inflation and output. However, a long-run relationship is in fact found, once the variance and skew of relative price changes are included as regressors. The error correction model implies plausible short-term dynamics in this case. Originality/value – This paper combines two distinct literatures, on the Phillips Curve and on the distribution of relative price changes, showing that insights from the latter can be essential in constructing coherent models of the Philips Curve.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 38 (2011)
Issue (Month): 5 (November)
Pages: 546-561

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Handle: RePEc:eme:jespps:v:38:y:2011:i:5:p:546-561

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Related research

Keywords: Inflation; Phillips Curve; Relative price variability; Skewness; Turkey; Variable costs;

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References

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  1. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 132-52, February.
  2. 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., vol. 40(2), pages 71-82, March.
  3. Özlem Önder, 2006. "The Stability Of The Turkish Phillips Curve And Alternative Regime Shifting Models," Working Papers 0602, Ege University, Department of Economics.
  4. Jörg Döpke & Christian Pierdzioch, 2001. "Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany," Kiel Working Papers 1059, Kiel Institute for the World Economy.
  5. Holly, Sean, 1997. "Relative Price Dispersion and the Rate of Inflation: The Evidence from Japan," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 206-226.
  6. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
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Cited by:
  1. Hasanov, Mübariz & Araç, Aysen & Telatar, Funda, 2010. "Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey," Economic Modelling, Elsevier, vol. 27(5), pages 1103-1115, September.

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