Relative price variability and the Phillips Curve: evidence from Turkey
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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Volume (Year): 38 (2011)
Issue (Month): 5 (November)
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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.:
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- A. Ozlem Onder, 2009.
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- Özlem Önder, 2006. "The Stability Of The Turkish Phillips Curve And Alternative Regime Shifting Models," Working Papers 0602, Ege University, Department of Economics.
- 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.
- Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
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