Tradable and Non-tradable Inflation in Turkey: Predicting Different States with Markov Regime-Switching Approach

Hulya Saygili and Aysun Turkvatan

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

Abstract: The recent literature debates the significance of different regimes of inflation and trade linkages in explaining the relationship between inflation and alternative reference indicators. This paper contributes to this literature in several respects. First, it explores which states of the reference indicators are more related with low, normal or high regimes of inflation. Second, it takes globalization into account and performs the analysis for goods and services in the consumer basket classified with respect to their trade openness and content of intermediate imports: tradable/non-tradable items and items with low/high imported intermediate share. It applies Markov regime-switching models to determine the states of inflation and reference series then compare probability scores of matching different regimes of inflation and different regimes of reference indicators. Third, it computes Consumer Price Indices in tradable/non-tradable and low/high imported intermediate details for an emerging country, Turkey which distinguishes from the others with high trade openness, high global integration rate and implementation of inflation targeting regime.

Keywords: Inflation regimes; Tradable/non-tradable inflation; Markov regime-switching models; Probability score analysis (search for similar items in EconPapers)
JEL-codes: C11 E31 F41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ara, nep-cba, nep-int, nep-isf, nep-mac, nep-mon and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2117

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