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The Hybrid New Keynesian Phillips Curve: An Application For Türkiye

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  • Havva Koç

    (Trakya University, Institute of Social Sciences, Department of Econometrics, Edirne, Turkiye)

Abstract

Inflation is a continuous structural problem in the history of Türkiye’s economy. High increases in inflation cause unpredictability and worries about the future. This situation negatively affects the pricing behavior of economic agents. The question that comes to the fore at this point is to what extent this change in the formation of expectations is reflected in the pricing behavior and inflation dynamics. In this paper, the effects of the output gap, import prices, and expectations on inflation between the 2013-2022 period in Türkiye were examined. Vector Autoregressive Model / VAR was the preferred method for analysis. According to the variance decomposition results of the study, inflation, changes in import prices, expected inflation, expected increases in USD/TL exchange rates, interest rate expectations and the output gap help explain a significant part of the total change in inflation. The results of the Impact-Response analysis and the effect of inflation on itself indicated inflation inertia. This showed that despite the policies implemented by the decision makers, economic agents adjusted their pricing behavior according to past inflation rather than future inflation expectations. For this reason, the measures taken by the decision-makers was not completely successful. However, the analysis did not show that the inflation-targeting regime was successful in anchoring the expectations of economic agents. If the central bank or the economic authority reduces inflation uncertainty and develops policies based on expectations, it will have a positive effect on inflation. This will bring remarkable results for policymakers, especially for price stability and inflation targeting.

Suggested Citation

  • 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.
    • Handle: RePEc:ist:ekoist:v:0:y:2023:i:39:p:129-146
    DOI: 10.26650/ekoist.2023.39.1309349
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    References listed on IDEAS

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