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Relative Price Variability and the Philips Curve: Evidence from Turkey

  • A. Nazif Catik

    ()

    (Department of Economics, Ege University)

  • Christopher Martin

    ()

    (Department of Economics and Finance, Brunel University)

  • A. Özlem Önder

    ()

    (Department of Economics, Ege University)

We argue that relative price changes are a key component of the Phillips curve relationship between inflation and output. Building on work by Ball and Mankiw, we propose including measures of the variances and skewness of relative price adjustment in an otherwise standard model of the Phillips curve. We examine the case of Turkey, where distribution of price changes is especially skewed and where the existence of a Phillips curve has been questioned. We have two main findings: (i) inclusion of measures of the distribution of relative price changes improves our understanding of the Phillips curve trade-off; (ii) there is no evidence of such a trade-off if these measures are not included.

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File URL: http://iibf.ege.edu.tr/economics/papers/wp08-07.pdf
File Function: First version, 2008
Download Restriction: no

Paper provided by Ege University, Department of Economics in its series Working Papers with number 0807.

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Length: 26 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:ege:wpaper:0807
Contact details of provider: Web page: http://www.iibf.ege.edu.tr/economics/

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  1. Jörg Döpke & Christian Pierdzioch, 2001. "Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany," Kiel Working Papers 1059, Kiel Institute for the World Economy.
  2. A. Ozlem Onder, 2009. "The stability of the Turkish Phillips curve and alternative regime shifting models," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2597-2604.
  3. A. Özlem Önder, 2004. "Forecasting Inflation in Emerging Markets by Using the Phillips Curve and Alternative Time Series Models," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 40(2), pages 71-82, March.
  4. Holly, Sean, 1997. "Relative Price Dispersion and the Rate of Inflation: The Evidence from Japan," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 206-226.
  5. Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
  6. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
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