EconPapers    
Economics at your fingertips  
 

A Disaggregated Analysis of the Impact of Output Gap on Inflation and Implications for Monetary Policy

Oguz Atuk (), Utku Ozmen and Cagri Sarikaya ()

Prague Economic Papers, 2018, vol. 2018, issue 6, 668-683

Abstract: This study investigates the sensitivity of Consumer Price Index (CPI) sub-items to output gap for an emerging market economy, Turkey. To this aim, we estimate standard Phillips Curve equations for each of the 152 sub-indices of the CPI and determine the goods and services that respond to output gap in a statistically and economically significant manner. Thereby, we propose an alternative view to assess core inflation as a complementary tool to better monitor underlying inflation with respect to its main drivers. Empirical findings show that about one-third of the consumer basket is affected by the output gap. Remaining items that are found to be insensitive to business cycle extensively co-move with import prices and exchange rate. The results imply that controlling inflation through counter-cyclical policies may be a more challenging issue, especially when external factors work in the opposite direction. Policy efforts to reduce exchange rate volatility and import content of aggregate production are as important as cyclical policies geared toward steering the economy with respect to its potential.

Keywords: business cycle; inflation; Phillips Curve; core inflation; Turkey (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://pep.vse.cz/doi/10.18267/j.pep.677.html (text/html)
http://pep.vse.cz/doi/10.18267/j.pep.677.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:prg:jnlpep:v:2018:y:2018:i:6:id:677:p:668-683

Ordering information: This journal article can be ordered from
Editorial office Prague Economic Papers, University of Economics, nám. W. Churchilla 4, 130 67 Praha 3, Czech Republic
http://pep.vse.cz

DOI: 10.18267/j.pep.677

Access Statistics for this article

Prague Economic Papers is currently edited by Klára Pavlová

More articles in Prague Economic Papers from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().

 
Page updated 2025-03-30
Handle: RePEc:prg:jnlpep:v:2018:y:2018:i:6:id:677:p:668-683