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Inflationary Effects of Oil Prices in Turkey: A Regime-Switching Approach

Nazif Catik () and A. Özlem Önder

Emerging Markets Finance and Trade, 2011, vol. 47, issue 5, 125-140

Abstract: This paper investigates the existence of oil pass-through to inflation for Turkey covering the period February 1996-May 2007. Oil price-augmented Phillips curves are estimated with linear and Markov regime-switching models. Markov regime-switching models reveal the asymmetric structure of oil pass-through and indicate the existence of two different regimes characterized as the high- and the low-inflation periods. We find evidence for asymmetric oil pass-through in the high-inflation regime for headline and food- and energy-excluded inflation measures. Our results suggest that Jarque-Bera core inflation is not affected by oil price variations under either inflationary environment. Hence, we suggest the Jarque-Bera indicator as an intermediate target in the analysis of the future trend of inflation.

Keywords: inflation; Markov regime-switching models; oil shocks; pass-through (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:mes:emfitr:v:47:y:2011:i:5:p:125-140