Optimal univariate expectations under high and persistent inflation: new evidence from Turkey
The poor performance of sticky-price models with rational expectations in explaining the inflationary inertia in the US economy constitutes the basis for sticky-price models of near-rational expectations in the recent literature. However, previous studies on inflationary inertia in Turkey not only lack a model of nominal stickiness but also do not try to explain inflation persistence by expectations. Even though, there exists evidence for persistent inflation in Turkey as confirmed by earlier studies, and other studies provide evidence that expectations are neither perfectly rational nor purely adaptive, there is no attempt to link this near-rational behavior to inflationary inertia. Given this gap, this paper, therefore, tests empirically a sticky-price model under the assumption of near-rational expectations on two different inflation episodes in the Turkish economy. The near-rational expectations as described by optimal univariate expectations where agents use information on past inflation optimally while data on other variables are ignored, not only fit the data for both periods but also are not subject to Lucas critique. Alternatively, near-rational expectations are assumed to be backward looking. This alternative scenario shows that optimal univariate expectations perform even better during relatively higher inflation periods.
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.
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.
Volume (Year): 346 (2005)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
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.:
- Laurence Ball, 1991.
"The genesis of inflation and the costs of disinflation,"
Federal Reserve Bank of Cleveland, pages 439-461.
- Ball, Laurence, 1991. "The Genesis of Inflation and the Costs of Disinflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 439-52, August.
- Laurence Ball, 1991. "The Genesis of Inflation and the Costs of Disinflation," NBER Working Papers 3621, National Bureau of Economic Research, Inc.
- Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February.
- Ercan Uygur, 1989. "Inflation Expectations of the Turkish Manufacturing Firms," Discussion Papers 8904, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- C. Emre Alper & Murat Ucer, 1998. "Some Observations on Turkish Inflation: A ''Random Walk'' Down the Past Decade," Working Papers 1998/02, Bogazici University, Department of Economics.
- Soner Baskaya & Pelin Berkmen & H.Murat Ozbilgin & Erdal Yilmaz, 1999. "TEFE ve TUFE Endeksleri ile Alt Kalemlerindeki Mevsimsel Hareketlerin Incelenmesi," Working Papers 9902, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999.
"Persistence in International Inflation Rates,"
Southern Economic Journal,
Southern Economic Association, vol. 65(4), pages 900-913, April.
- O. Cevdet Akcay & C. Emre Alper & Suleyman Ozmucur, 1996. "Budget Deficit, Money Supply and Inflation: Evidence from Low and High Frequency Data for Turkey," Working Papers 1996/12, Bogazici University, Department of Economics.
- Olcay Yucel Emir & Almila Karasoy & Kursat Kunter, 2000. "Monetary Policy Reaction Function In Turkey," Discussion Papers 0005, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- repec:bil:bilpap:9910 is not listed on IDEAS
- Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
- Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
- Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
- Pierre-Richard AgÃ©nor & Alexander W. Hoffmaister, 1997. "Money, Wages and Inflation in Middle-Income Developing Countries," IMF Working Papers 97/174, International Monetary Fund.
- Erin Yeldan & †mit Cizre-Sakallioglu, 1999. "Dynamics of Macroeconomic Disequilibrium and Inflation in Turkey : The State, Politics, and the Marketsunder a Globalized Developing Economy," Working Papers 9910, Department of Economics, Bilkent University.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Laura Papi & G. C. Lim, 1997. "An Econometric Analysis of the Determinants of Inflation in Turkey," IMF Working Papers 97/170, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:346:y:2005:i:3:p:499-517. 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.