Do Financial Conditions have a Predictive Power on Inflation in Turkey?

Umit Bulut

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 2, 621-628

Abstract: This paper aims at examining the causal relationships between financial conditions and inflation in Turkey by employing quarterly data from 2005:Q1 to 2015:Q3. To this end, the paper, first, constructs a financial conditions index (FCI) in Turkey and observes that the FCI can considerably capture the developments in Turkey and in the world. Then, the paper follows unit root tests. Finally, the paper conducts the asymmetric causality test. The asymmetric causality test explores that the FCI and inflation have a predictive power on each other and thus presents valuable information to the Central Bank of the Republic of Turkey (CBRT). Eventually, upon its findings, the paper asserts that the FCI: (i) Should be updated periodically, (ii) should be extended with new financial variables, if necessary, and (iii) should be monitored carefully by the CBRT in order to achieve inflation targets.

Keywords: The Central Bank of the Republic of Turkey; Financial Conditions Index; Inflation; Asymmetric Causality Test (search for similar items in EconPapers)
JEL-codes: C32 C43 E52 G17 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2016-02-35

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