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Inflation targeting, flexible exchange rates and inflation convergence

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  • Hakan Yilmazkuday

Abstract

Using a disaggregated level Consumer Price Index (CPI) data, this article compares convergence properties of regional inflation rates in a small open economy, Turkey, between pre-inflation-targeting and inflation-targeting periods, where the latter also corresponds to a flexible exchange rate regime. It is found that during the inflation-targeting period, Turkish regional inflation rates have converged to each other in terms of CPI groups with relatively nontradable components, while they have diverged from each other in terms of CPI groups with relatively tradable components. Since a common and sound monetary policy among the regions of a country is supposed to have a convergence effect on regional inflation rates according to the conventional wisdom, the results for CPI groups with relatively tradable components require further attention and have significant policy implications, especially for inflation-targeting countries using flexible exchange rate regimes.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.608642
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 5 (February)
Pages: 593-603

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Handle: RePEc:taf:applec:45:y:2013:i:5:p:593-603

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Cited by:
  1. Filiz Yesilyurt & J. Elhorst, 2014. "A regional analysis of inflation dynamics in Turkey," The Annals of Regional Science, Springer, vol. 52(1), pages 1-17, January.
  2. Giray GOZGOR, 2013. "Unemployment Persistence and Inflation Convergence: Evidence from Regions of Turkey," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 55-64.

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