Inflation Expectations in Turkey: Determinants and Roles in Missing Inflation Targets

Umit Bulut

Journal of Central Banking Theory and Practice, 2018, vol. 7, issue 3, 73-90

Abstract: This paper aims at specifying the determinants of 12-month ahead and 24-month ahead inflation expectations in Turkey by using monthly data from April 2006 to December 2016. Put differently, this paper tries to shed light on how inflation expectations respond to changes in past inflation rate, inflation target, output gap, USD/TL exchange rate, oil price, and EMBI in Turkey. To this end, the paper first conducts unit root tests in order to detect the order of integration of the variables. Then, the paper employs the autoregressive distributed lag approach to examine whether there is a cointegration relationship among variables and to estimate long-run parameters. According to the findings, 12-month ahead expected inflation rate is positively related to past inflation rate, inflation target, output gap, USD/TL exchange rate, and oil price and is negatively related to EMBI. Besides, 24-month ahead expected inflation rate is positively related to past inflation rate and USD/TL exchange rate and is negatively related to inflation target and EMBI. Upon its findings, the paper makes some inferences about the success of inflation targeting strategy in Turkey.

Keywords: the Central Bank of the Republic of Turkey; inflation targeting; inflation expectations; decision makers and experts; autoregressive distributed lag approach. (search for similar items in EconPapers)
JEL-codes: C22 E52 E58 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:7:y:2018:i:3:p:73-90

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