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Would "Cold Turkey" Work in Turkey?

  • Oya Celasun

    (International Monetary Fund)

  • R. Gaston Gelos

    (International Monetary Fund)

  • Alessandro Prati

    (International Monetary Fund)

When inflation rates in a country are persistently high, observers often believe that the inflation process has become "inertial," posing an obstacle to disinflation. Using an innovative approach, we assess the empirical validity of this argument for the case of Turkey. We find that the current degree of inflation persistence in Turkey is lower than in Brazil and Uruguay prior to their successful stabilization programs. More significantly, expectations of future inflation are more important than past inflation in shaping the inflation process, providing little evidence of "backward-looking" behavior. Using survey data, we find that inflation expectations, in turn, largely depend on the evolution of fiscal variables.

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Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 51 (2004)
Issue (Month): 3 (November)
Pages: 493-509

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Handle: RePEc:pal:imfstp:v:51:y:2004:i:3:p:493-509
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