Drivers of Turkish Inflation

Hakan Yilmazkuday

No 2204, Working Papers from Florida International University, Department of Economics

Abstract: This paper investigates the drivers of Turkish inflation by using a structural vector autoregression model, where monthly data on global oil prices, unemployment rates, inflation rates, policy rates and exchange rates are used. The empirical results show that Turkish inflation increases following a negative policy rate shock, a positive exchange rate shock, or a positive global oil price shock. The volatility of Turkish inflation is mostly explained by global oil prices and exchange rate movements in the long run, while the contribution of exchange rate shocks to Turkish inflation has continuously increased over time. As additional empirical results show that exchange rate depreciation can be reduced by positive policy rate shocks, it is implied that a conventional monetary policy increasing policy rates following an increase in inflation or a depreciation of Turkish lira would be optimal to achieve and maintain price stability in Turkey, which is the primary objective of the Central Bank of the Republic of Turkey.

Keywords: Monetary Policy; Inflation; Unemployment; Exchange Rate; Turkey (search for similar items in EconPapers)
JEL-codes: E31 E52 F41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ara, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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https://economics.fiu.edu/research/pdfs/2022_working_papers/2204.pdf First version, 2022 (application/pdf)

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Journal Article: Drivers of Turkish inflation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fiu:wpaper:2204

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