An Analysis of Inflation Expectations of the Turkish Private Manufacturing Industry

Ercan Karadas () and Fethi Ogunc ()

Central Bank Review, 2003, vol. 3, issue 2, 57-83

Abstract: The main purpose of this paper is to make a detailed analysis of the quantified expected inflation series obtained from the Business Tendency Survey conducted by the Central Bank of the Republic of Turkey. Different representations of simple expectation formation mechanisms that appeared in the literature are discussed in the context of Turkey. In selecting the most appropriate mechanism, instead of an ad hoc and an arbitrary methodology, nested hypotheses and the sequential testing procedure are applied. A general first order extrapolative mechanism is found as a result of this procedure. But, the selected mechanism is far from being satisfactory. Therefore, a new augmented model. in which one lag of inflation, exchange rate, private sector capacity utilization rate, stock evaluations of the last three months and average cost expectations of the next three months are employed as explanatory variables, is proposed. Finally, taking into account problems regarding the tests of rationality, efficiency and orthogonality tests are carried out. As a result of these tests, rationality assumption cannot be rejected very powerfully. However, this is not stemmed from the accuracy of the expectations, but from the structure of the economy that precludes accurate short-term forecasting.

Keywords: Quantification; Sequential Testing Procedure; Formation of Inflation Expectations; Rationality (search for similar items in EconPapers)
JEL-codes: C19 D84 E31 (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... iew/2003/Volume+3-2/ (application/pdf)

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:tcb:cebare:v:3:y:2003:i:2:p:57-83

Access Statistics for this article

More articles in Central Bank Review from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by () and () and () and ().