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Inflation Dynamics in Turkey from a Bayesian Perspective

Author

Listed:
  • Fethi Ogunc
  • Mustafa Utku Ozmen
  • Cagri Sarikaya

Abstract

In this paper, we aim to contribute to the understanding of inflation dynamics in Turkey by estimating a Bayesian VAR (BVAR) model. Our identification strategy is based on a set of zero restrictions and use of exogenous control variables. Main results are as follows: (i) Pass-through from exchange rate to inflation is stronger than that from import prices. Moreover, exchange rate and import price shocks spread over inflation very quickly (most of the adjustment is complete within 9 months), particularly faster for the latter, with the estimates being highly precise (the dispersion around median responses are relatively narrow). (ii) Economic growth has a significant but lagged effect on inflation, yet with a greater uncertainty compared to exchange rate and import price pass-through. (iii) The degree of nominal wage pass-through on inflation is estimated to be close to the degree of exchange rate pass-through, albeit with a longer transmission and a greater uncertainty.

Suggested Citation

  • Fethi Ogunc & Mustafa Utku Ozmen & Cagri Sarikaya, 2018. "Inflation Dynamics in Turkey from a Bayesian Perspective," Working Papers 1810, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1810
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2018/18-10
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    Citations

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    Cited by:

    1. Havva Koç, 2023. "The Hybrid New Keynesian Phillips Curve: An Application For Türkiye," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(39), pages 129-146, December.

    More about this item

    Keywords

    Inflation; Cost pass-through; Bayesian vector autoregression;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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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