The main aim of this thesis is to explain the inflation dynamics in Turkey
within a theoretically consistent empirical framework. The New Keynesian
Phillips Curve (NKPC) is chosen as the basis model for our analysis because,
by describing the inflation process within an intertemporal optimizing dynamic
general equilibrium model, it provides a rigorous analytical groundwork for
credible welfare and policy analysis. We have contributed to the literature by
developing a NKPC formulation that is novel in the literature: A constant
elasticity of substitution (CES) type of production function incorporating
imported and domestically produced intermediate goods was combined with
incomplete exchange rate pass through to import prices. The short-run inflation
dynamics were analyzed within the context of this new specification by
estimating the model&rsquo / s highly nonlinear structural parameters that capture the
price-setting behavior in Turkey for period 1988:1 - 2009:4. Our findings
suggest that this NKPC formulation can explain the 1994 and 2000-01 crises as
well as the current environment of low inflation achieved with the adoption of
the implicit and fully fledged inflation targeting regimes quite well. As a policy
application we explored the effects of the inflation targeting framework
adopted after the 2000-01 crises on the parameters characterizing the inflation
process in Turkey. The subsample econometric results suggested that the
inflation targeting framework applied was quite successful in decreasing
inflation inertia in Turkey. Thus, should the success of the inflation targeting
regime continue, this should be taken as an opportunity to reduce inflation
substantially with very low output losses.
| Identifer | oai:union.ndltd.org:METU/oai:etd.lib.metu.edu.tr:http://etd.lib.metu.edu.tr/upload/12613065/index.pdf |
| Date | 01 February 2011 |
| Creators | Eruygur, Aysegul |
| Contributors | Erlat, Haluk |
| Publisher | METU |
| Source Sets | Middle East Technical Univ. |
| Language | English |
| Detected Language | English |
| Type | Ph.D. Thesis |
| Format | text/pdf |
| Rights | To liberate the content for public access |
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