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Demand-and Supply-Driven Inflation Decomposition in Turkiye

Author

Listed:
  • Okan Akarsu
  • Emrehan Aktug

Abstract

We document the demand and supply driven components of inflation in Türkiye following the decomposition of Shapiro (2022). The results suggest that the recent acceleration in inflation starts with supply-driven inflation, but over time it transitioned into an inflationary environment driven by demand. Consistent with the theory, oil-supply and exchange rate shocks act to increase the supply-driven contribution, whereas monetary policy tightening acts to reduce the demand-driven contribution of inflation. This decomposition can potentially be a useful real-time tracker for policymakers.

Suggested Citation

  • Okan Akarsu & Emrehan Aktug, 2024. "Demand-and Supply-Driven Inflation Decomposition in Turkiye," Working Papers 2410, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2410
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2024/24-10
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    More about this item

    Keywords

    Inflation decomposition; Demand; Supply; Exchange rate pass-through;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • 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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