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The Determinants of Price Frequency in Turkey

Engin Yilmaz and Bora Süslü

MPRA Paper from University Library of Munich, Germany

Abstract: The effect of monetary and fiscal policy on the output depends on the frequency of price changes. When the prices change infrequently or prices change slowly, monetary and fiscal policy have a real effects on the output. Developed countries generally have a rigid prices but developing countries have a relatively flexible prices. This difference is originated from the reality that the developing countries have higher average inflation than the developed countries. Economic literature focuses on the micro reasons of the frequency of price changes, on the other hand, the inflation is seen the main factor which affects the frequency of price changes in the macro perspective. This study holds down the assumption that the frequency of price changes is a function of the inflation rate in the macro perspective. In addition to this, it is also focused on the direct relationships between the frequency of price changes and the macro variables which affect the inflation rate. It is revealed the effect of macro factors on the frequency of price changes in this work. It is concluded that the determinants of the frequency of price changes in the macro perspective in Turkey are the expected inflation and the exchange rate rather than output gap. It can be said that firms’ price frequency behavior directly depends on cost push factors in Turkey.

Keywords: Price Frequency; Price Frequency Calculation; Price Rigidity (search for similar items in EconPapers)
JEL-codes: E30 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-mac and nep-mon
Date: 2018-04-20
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Published in Academic Research in Social, Human and Administrative Sciences-I 1.I(2018): pp. 173-188

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