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A Sectoral Approach to Inflation Expectations in the Turkish Economy: The Vector Error Correction Model (VECM) and Time-Varying LA-VAR Granger Causality Analysis

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  • Gülbahar Atasever
  • Bora Süslü

Abstract

The high inflation rates in Türkiye in recent years highlight the importance of expectations and motivate studies on this issue. This study employs a Vector Error Correction Model (VECM) alongside a Time-Varying LA-VAR Granger Causality framework to investigate the relationship between inflation expectations and the prices of goods and services in Türkiye over the period 2013:01–2023:12. The results demonstrate the existence of co-integrating links between the variables. The results show that an orthogonalized shock to goods price has a temporary effect on inflation expectations, but an orthogonalized shock to services price has a permanent effect on inflation expectations. In addition, according to time-varying Granger causality analysis, the service sector, in particular, has a significant impact on inflation expectations. In this context, expectations are a significant factor that limits the effectiveness of the central bank's monetary policies. Although it is not a task that monetary policy can carry out on its own, the central bank should implement regulations that ensure stability regarding price movements in the service sector.

Suggested Citation

  • Gülbahar Atasever & Bora Süslü, 2026. "A Sectoral Approach to Inflation Expectations in the Turkish Economy: The Vector Error Correction Model (VECM) and Time-Varying LA-VAR Granger Causality Analysis," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 10(4), pages 1419-1445.
    • Handle: RePEc:ahs:journl:v:10:y:2026:i:4:p:1419-1445
    DOI: 10.30784/epfad.1721270
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    References listed on IDEAS

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    1. Bomfim, Antulio N & Rudebusch, Glenn D, 2000. "Opportunistic and Deliberate Disinflation under Imperfect Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 707-721, November.
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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