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Relative Price Variability And Inflation In Turkey: Results From Kalman Filter Estimation

Author

Listed:
  • YAMAK, Rahmi

    (Karadeniz Technical University, Department of Econometrics, Turkey)

  • ERDEM, Havvanur Feyza

    (Karadeniz Technical University, Department of Econometrics, Turkey)

  • KOÇAK, Sinem

    (Karadeniz Technical University, Department of Econometrics, Turkey)

Abstract

This study re-examines the relationship between inflation rate and relative price variability in Turkey for the period of February 2005November 2015, by relaxing the assumptions of linearity and stability. The linearity assumption between the two variables is relaxed by estimating quadratic regression equation. The assumption of stability is removed by utilizing the Kalman filter approach. The Kalman filter estimates of the regression coefficients are found to satisfy the Ushaped relationship between inflation and relative price variability. Time variation on the regression coefficients and the U-shaped curve is significant. The annualized inflation rate which minimizes relative price variability varies from 4.26% to 4.93%.

Suggested Citation

  • YAMAK, Rahmi & ERDEM, Havvanur Feyza & KOÇAK, Sinem, 2017. "Relative Price Variability And Inflation In Turkey: Results From Kalman Filter Estimation," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(1), pages 28-40.
  • Handle: RePEc:vls:finstu:v:21:y:2017:i:1:p:28-40
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    References listed on IDEAS

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    More about this item

    Keywords

    Time Varying Coefficient; Optimal Inflation; UShape; Kalman Filter; Relative Price Variability;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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