Explaining and Forecasting Inflation in Turkey
The growing adoption of an inflation targeting framework in emerging market economies has increased the importance of understanding inflation dynamics and forecasting its future path in these countries. The author considers the case of Turkey and i...
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| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/04/3422996/explaining-forecasting-inflation-tukey http://hdl.handle.net/10986/14772 |
| Summary: | The growing adoption of an inflation
targeting framework in emerging market economies has
increased the importance of understanding inflation dynamics
and forecasting its future path in these countries. The
author considers the case of Turkey and investigates the
performance of models that have some theoretical
foundations. To this end, his study focuses on mark-up
models, monetary models, and the Phillips curve. The
findings suggest that the mark-up models have the best
in-sample performance followed by money gap models and the
Phillips curve. The empirical results from out-of-sample
forecasting performance for the period covering the new
economic program (May 2001-December 2002), however, show
that the Phillips curve and the money gap models perform
better than mark-up models. These findings, in turn, imply
that (1) Phillips curves augmented with the exchange rate
and money models might provide complementary views in the
Turkish context; and (2) the relative importance of output
gap and monetary disequilibrium in the inflation process has
increased under the floating exchange rate regime. The
results underscore the importance of relying on multiple
models of inflation in the conduct of Turkish monetary policy. |
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