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Inflation Expectations in Turkey: Evidence from Panel Data

Author

Listed:
  • Ece Oral
  • Hülya Saygili
  • Mesut Saygili
  • S. Özge Tuncel

Abstract

We investigated the rationality of financial and real sectors’ CPI inflation expectations in Turkey using the multivariate panel cointegration method. The use of panel techniques strengthened our empirical results by not only increasing sample size but also allowing heterogeneity across groups of respondents. Having found the expectations irrational in the stricter sense, we proceeded to analyze the significance of both past and future inflation rates as determinants of agents’ future inflation forecasts. Both recursive and rolling estimates show that forecasters’ weight on future/target inflation rates versus past actual and expected inflation rates changes over time as unexpected shocks derail inflation from its disinflationary path. Lastly, we find asymmetry in expectations such that the response of inflation expectations to an increase in the inflation rate is twice the size of the response to a decrease in the inflation rate. This may indicate long delays in restoring credibility of central banks after a positive shock on the inflation rate. JEL Classifications: C23, D84, E31 Keywords: Inflation expectations, Inflation formation, Panel cointegration, Recursive regression

Suggested Citation

  • Ece Oral & Hülya Saygili & Mesut Saygili & S. Özge Tuncel, 2011. "Inflation Expectations in Turkey: Evidence from Panel Data," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2011(1), pages 5-28.
    • Handle: RePEc:oec:stdkab:5kgg5k53np7c
    DOI: 10.1787/jbcma-2011-5kgg5k53np7c
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    Citations

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    Cited by:

    1. Miah, Fazlul & Rahman, M. Saifur & Albinali, Khalid, 2016. "Rationality of survey based inflation expectations: A study of 18 emerging economies’ inflation forecasts," Research in International Business and Finance, Elsevier, vol. 36(C), pages 158-166.
    2. Baris Soybilgen & Ege Yazgan, 2017. "An evaluation of inflation expectations in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 17(1), pages 1-31–38.
    3. Carlos Huertas Campos & Eliana González Molano & Cristhian Ruiz Cardozo, 2015. "La formación de expectativas de inflación en Colombia," Borradores de Economia 12699, Banco de la Republica.
    4. Hernando Vargas-Herrera, 2016. "Inflation expectations and a model-based core inflation measure in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 123-151, Bank for International Settlements.
    5. Miah, Fazlul & Khalifa, Ahmed Ali & Hammoudeh, Shawkat, 2016. "Further evidence on the rationality of interest rate expectations: A comprehensive study of developed and emerging economies," Economic Modelling, Elsevier, vol. 54(C), pages 574-590.
    6. Ece Oral, 2016. "Measuring Consumer Inflation Expectations in Turkey," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(1), pages 43-74.
    7. Ece Oral, 2013. "Consumer Inflation Expectations in Turkey," IFC Working Papers 10, Bank for International Settlements.

    More about this item

    Keywords

    inflation expectations; inflation formation; panel cointegration; recursive regression;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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