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Nonlinearity and Structural Stability in the Phillips Curve: Evidence from Turkey

  • Mubariz Hasanov

    (Hacettepe University, Department of Economics)

  • Aysen Arac

    (Hacettepe University, Department of Economics)

  • Funda Telatar

    (Hacettepe University, Department of Economics)

In this paper, we investigate possible nonlinearities in the inflation–output relationship in Turkey for the 1980–2008 period. We first estimate a linear bivariate model for the inflation rate and output gap, and test for linearity of the estimated model against nonlinear alternatives. Linearity test results suggest that the relationship between the inflation rate and output gap is highly nonlinear. We estimate a bivariate timevarying smooth transition regression model, and compute dynamic effects of one variable on the other by generalized impulse response functions. Computed impulse response functions indicate that inflation–output relationship in Turkey during the analyzed period was regime dependent and varied considerably across time.

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File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-3.pdf
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Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20123.

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Length: 13 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20123
Contact details of provider: Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Web page: http://www.iktisat.hacettepe.edu.tr
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