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High versus Low Inflation: Implications for Price-Level Convergence

  • M. Ege Yazgan

    ()

    (Istanbul Bilgi University)

  • Hakan Yilmazkuday

    ()

    (Department of Economics, Florida International University)

This paper investigates the relationship between the level of inflation and regional price-level convergence utilizing micro-level price data from Turkey during two clearly distinguishable periods of high and low inflation. The results indicate that higher persistence and slower convergence of price levels are evident during the low-inflation period, which corresponds to the inflation targeting (IT) regime. During the low-inflation IT regime, inflation convergence across regions appears to occur more quickly and may be responsible for the slower pace of convergence in price levels. Overall, IT in Turkey, which was successful in lowering and maintaining inflation at acceptable levels, also appears to be associated with faster convergence in inflation rates at the expense of slower convergence in price levels.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1412.pdf
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Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1412.

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Length: 28 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:koc:wpaper:1412
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