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Would "Cold Turkey" Work in Turkey?

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  • Mr. Gaston Gelos
  • Mr. Alessandro Prati
  • Oya Celasun

Abstract

Persistently high inflation rates have led many to believe that inflation in Turkey has become "inertial," posing an obstacle to disinflation. We assess the empirical validity of this argument. 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, depend largely on the evolution of fiscal variables.

Suggested Citation

  • Mr. Gaston Gelos & Mr. Alessandro Prati & Oya Celasun, 2003. "Would "Cold Turkey" Work in Turkey?," IMF Working Papers 2003/049, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/049
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    Cited by:

    1. Ozlem Aytac, 2016. "Macroeconomic Developments and Exchange-Rate Policy in Turkey, 1980-2001," Accounting and Finance Research, Sciedu Press, vol. 5(2), pages 115-115, May.
    2. Oya Pinar Ardic, 2006. "Output, the Real Exchange Rate and the Crises in Turkey," Working Papers 2006/03, Bogazici University, Department of Economics.
    3. repec:spo:wpecon:info:hdl:2441/3003 is not listed on IDEAS
    4. Jérôme Creel & Günes Kamber, 2004. "Debt, deficits and inflation on the road to the EU: the case of Turkey," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 157-174.
    5. Murat Tasdemir & Abdullah Yalama, 2010. "Inter-Regional Volatility Spillovers Between Emerging Capital Markets: Evidence From Turkey And Brazil," Working Papers 2010/8, Turkish Economic Association, revised Jan 2010.
    6. Levent, Korap, 2006. "An empirical analysis of Turkish inflation (1988-2004): some non-monetarist estimations," MPRA Paper 19630, University Library of Munich, Germany.
    7. repec:hal:spmain:info:hdl:2441/3003 is not listed on IDEAS
    8. Aytac, Ozlem, 2015. "A model of a heterodox exchange rate based stabilization," Economic Modelling, Elsevier, vol. 46(C), pages 100-117.
    9. Rodolfo Tomás Da Fonseca Nicolay & Gabriel Caldas Montes, 2014. "Comunicação Do Banco Central,Expectativas De Inflação E Profecia Auto-Realizável: Evidências Para Obrasil," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 046, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Kaya, Huseyin, 2013. "Forecasting the yield curve and the role of macroeconomic information in Turkey," Economic Modelling, Elsevier, vol. 33(C), pages 1-7.
    11. Aykut Kibritcioglu, 2004. "A Short Review of the Long History of Turkish High Inflation," Economics Bulletin, AccessEcon, vol. 28(2), pages 1.
    12. Ardic Oya Pinar & Yuzereroglu Uygar, 2009. "How Do Individuals Choose Banks? An Application to Household Level Data from Turkey," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-26, June.
    13. Agenor, Pierre-Richard & Jensen, Henning Tarp & Verghis, Mathew & Yeldan, Erinc, 2006. "Disinflation, fiscal sustainability, and labor market adjustment in Turkey," Policy Research Working Paper Series 3804, The World Bank.
    14. Oya Pınar Ardıc & Faruk Selcuk, 2006. "The dynamics of a newly floating exchange rate: the Turkish case," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 931-941.
    15. International Monetary Fund, 2005. "Hungary: Selected Issues," IMF Staff Country Reports 2005/215, International Monetary Fund.
    16. Oya Celasun & R. Gaston Gelos & Alessandro Prati, 2004. "Obstacles to disinflation: what is the role of fiscal expectations? [‘Disinflation with imperfect credibility’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 19(40), pages 442-481.
    17. repec:hal:wpspec:info:hdl:2441/3003 is not listed on IDEAS
    18. Kaya, Huseyin, 2013. "The yield curve and the macroeconomy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 32(C), pages 100-107.
    19. Ozlem Aytac, 2008. "A Model of Exchange-Rate-Based Stabilization for Turkey," Caepr Working Papers 2008-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    20. Faruk Selçuk, 2005. "The Policy Challenge with Floating Exchange Rates: Turkey’s Recent Experience," Open Economies Review, Springer, vol. 16(3), pages 295-312, July.
    21. Ozlem Aytac, 2008. "A Model of Exchange-Rate-Based Stabilization for Turkey," CAEPR Working Papers 2008-001, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    22. Murat Taşdemir & Abdullah Yalama, 2014. "Volatility Spillover Effects in Interregional Equity Markets: Empirical Evidence from Brazil and Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2), pages 190-202, March.
    23. repec:spo:wpmain:info:hdl:2441/3003 is not listed on IDEAS

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    More about this item

    Keywords

    WP; price; cost; Turkey; variable; Inflation; inertia; price rigidities; stabilization; inflation expectation; disinflation strategy; inflation persistence; disinflation attempt; CPI index; Inflation persistence; Disinflation; Government debt management; Fiscal stance;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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