Inflation Dynamics and its Sources in the Ottoman Empire: 1586-1913

This study examines the dynamics and determinants of inflation in the Ottoman Empire during the 1586-1913 period. There are two possible reasons for inflation: fiscal expansion and monetary expansion, which could be generated through the debasement of local currency (Akce). We used a set of political and structural variables in order to explain the change in inflation dynamics. In particular, we considered the war years, periods of Ottoman history that show different characteristics (the slow-down period, the recession period and the break-up period) and the period of constitutional monarchy. Moreover, we tested whether the inflation process was the same for each sultan and whether each sultan's behavior during the first year was different from the rest of his reign. The empirical evidence reported here suggests that war accelerated inflation as expected and fiscal expansion rather than the debasement of the Akce was the main reason for inflation. Moreover, the slow-down, the recession and the break-up periods affected inflation positively; both fiscal expansion and the debasement of the Akce were seen in these three periods as sources of inflation. While employing different inflationary policies during his reign, each sultan accelerated inflation in the first year of his reign by the debasement of the Akce or by fiscal expansion. Last, the constitutional monarchy period had a significant positive effect on inflation although fiscal expansion, rather than the debasement of the Akce, was the source of inflation during this period.