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Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model

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  • K. Azim Ozdemir
  • Mesut Saygili

Abstract

This paper uses the P-star model to explain inflation dynamics in Turkey. In P-star models, money plays an important role by determining the price gap, which is postulated to measure the pressure on prices in the economy. This pressure emerges when output is above the potential, interest rate is lower than the natural rate, or there exists some excess money in the economy. The estimation results with the Turkish data show that the price gap does indeed contain considerable information for explaining inflation dynamics. Moreover, the model selection criterion that compares the empirical performance of the P-star model with the New Classical Phillips curve relationship favors the P-star model over the Phillips curve relationship. We conclude that money is efficacious in predicting risk to price stability in Turkey

Suggested Citation

  • K. Azim Ozdemir & Mesut Saygili, 2008. "Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model," Working Papers 0808, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:0808
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    References listed on IDEAS

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    Cited by:

    1. Tomislav Globan & Vladimir Arčabić & Petar Sorić, 2016. "Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 154-168, January.
    2. Johannes VAN DER POL, 2016. "The modelling of networks using Exponential Random Graph Models: an introduction," Cahiers du GREThA 2016-22, Groupe de Recherche en Economie Théorique et Appliquée.
    3. Johannes Van Der Pol, 2017. "Introduction to network modeling using Exponential Random Graph models (ERGM)," Working Papers hal-01284994, HAL.
    4. K. Azim Özdemir & Mesut Saygili, 2013. "Economic uncertainty and money demand stability in Turkey," Journal of Economic Studies, Emerald Group Publishing, vol. 40(3), pages 314-333, July.
    5. Tomislav Globan & Vladimir Arčabić & Petar Sorić, 2016. "Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 154-168, January.

    More about this item

    Keywords

    Money Demand; P-star; Inflation Dynamics;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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