Inflation Dynamics in Turkey from a Bayesian Perspective

Fethi Ogunc (), Utku Ozmen and Cagri Sarikaya

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: In this paper, we aim to contribute to the understanding of inflation dynamics in Turkey by estimating a Bayesian VAR (BVAR) model. Our identification strategy is based on a set of zero restrictions and use of exogenous control variables. Main results are as follows: (i) Pass-through from exchange rate to inflation is stronger than that from import prices. Moreover, exchange rate and import price shocks spread over inflation very quickly (most of the adjustment is complete within 9 months), particularly faster for the latter, with the estimates being highly precise (the dispersion around median responses are relatively narrow). (ii) Economic growth has a significant but lagged effect on inflation, yet with a greater uncertainty compared to exchange rate and import price pass-through. (iii) The degree of nominal wage pass-through on inflation is estimated to be close to the degree of exchange rate pass-through, albeit with a longer transmission and a greater uncertainty.

Keywords: Inflation; Cost pass-through; Bayesian vector autoregression (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 E31 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ara, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1810

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