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Inflation Dynamics in Turkey: In Pursuit of a Domestic Cost Measure

Author

Listed:
  • Selen Başer Andiç
  • Hande Küçük
  • Fethi Öğünç

Abstract

We provide Bayesian estimates of an empirical model of consumer price inflation for Turkey based on the hybrid new Keynesian Phillips curve. We decompose real marginal costs into domestic and foreign components and focus particularly on identifying the effect of the domestic component. We find that the baseline model that uses output gap as a measure of domestic real marginal costs does a better job in explaining consumer price inflation compared to alternative models that incorporate real unit labor costs. However, estimations for services inflation point to the importance of real unit labor costs for this sector.

Suggested Citation

  • Selen Başer Andiç & Hande Küçük & Fethi Öğünç, 2015. "Inflation Dynamics in Turkey: In Pursuit of a Domestic Cost Measure," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(2), pages 418-431, March.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:2:p:418-431
    DOI: 10.1080/1540496X.2015.1019771
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    Cited by:

    1. Oguz Atuk & Cem Aysoy & Mustafa Utku Ozmen & Cagri Sarikaya, 2014. "Turkiye�de Enflasyonun Is Cevrimlerine Duyarliligi : Cikti Acigina Duyarli TUFE Alt Gruplarinin Saptanmasi," Working Papers 1437, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Narayan, Seema & Cirikisuva, Salote & Naivutu, Revoni, 2023. "A hybrid NKPC inflation model for the small Island state of Fiji," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 873-886.
    3. Balcilar, Mehmet & Kutan, Ali M. & Yaya, Mehmet E., 2017. "Testing the dependency theory on small island economies: The case of Cyprus," Economic Modelling, Elsevier, vol. 61(C), pages 1-11.
    4. Gayaker, Savas & Ağaslan, Erkan & Alkan, Buket & Çiçek, Serkan, 2021. "The deterioration in credibility, destabilization of exchange rate and the rise in exchange rate pass-through in Turkey," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 571-587.
    5. Melo, Luis F. & Loaiza, Rubén A. & Villamizar-Villegas, Mauricio, 2016. "Bayesian combination for inflation forecasts: The effects of a prior based on central banks’ estimates," Economic Systems, Elsevier, vol. 40(3), pages 387-397.

    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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

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