<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper aims at specifying the determinants of 12-month ahead and 24-month ahead inflation expectations in Turkey by using monthly data from April 2006 to December 2016. Put differently, this paper tries to shed light on how inflation expectations respond to changes in past inflation rate, inflation target, output gap, USD/TL exchange rate, oil price, and EMBI in Turkey. To this end, the paper first conducts unit root tests in order to detect the order of integration of the variables. Then, the paper employs the autoregressive distributed lag approach to examine whether there is a cointegration relationship among variables and to estimate long-run parameters. According to the findings, 12-month ahead expected inflation rate is positively related to past inflation rate, inflation target, output gap, USD/TL exchange rate, and oil price and is negatively related to EMBI. Besides, 24-month ahead expected inflation rate is positively related to past inflation rate and USD/TL exchange rate and is negatively related to inflation target and EMBI. Upon its findings, the paper makes some inferences about the success of inflation targeting strategy in Turkey.</p></abstract>

This paper aims at specifying the determinants of 12-month ahead and 24-month ahead inflation expectations in Turkey by using monthly data from April 2006 to December 2016. Put differently, this paper tries to shed light on how inflation expectations respond to changes in past inflation rate, inflation target, output gap, USD/TL exchange rate, oil price, and EMBI in Turkey. To this end, the paper first conducts unit root tests in order to detect the order of integration of the variables. Then, the paper employs the autoregressive distributed lag approach to examine whether there is a cointegration relationship among variables and to estimate long-run parameters. According to the findings, 12-month ahead expected inflation rate is positively related to past inflation rate, inflation target, output gap, USD/TL exchange rate, and oil price and is negatively related to EMBI. Besides, 24-month ahead expected inflation rate is positively related to past inflation rate and USD/TL exchange rate and is negatively related to inflation target and EMBI. Upon its findings, the paper makes some inferences about the success of inflation targeting strategy in Turkey.

Inflation Expectations in Turkey: Determinants and Roles in Missing Inflation Targets

Faculty of Economics and Administrative Sciences, Department of Economics

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

This paper aims at specifying the determinants of 12-month ahead and 24-month ahead inflation expectations in Turkey by using monthly data from April 2006 to...

Inflation Expectations in Turkey: Determinants and Roles in Missing Inflation Targets

Published Online: Sep 10, 2018

Page range: 73 - 90

Received: Oct 18, 2017

Accepted: Dec 29, 2017

DOI: https://doi.org/10.2478/jcbtp-2018-0024

Keywords
the Central Bank of the Republic of Turkey, inflation targeting, inflation expectations, decision makers and experts, autoregressive distributed lag approach

© 2018 Umit Bulut, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Inflation Expectations in Turkey: Determinants and Roles in Missing Inflation Targets

Published Online: Sep 10, 2018

Page range: 73 - 90

Received: Oct 18, 2017

Accepted: Dec 29, 2017

DOI: https://doi.org/10.2478/jcbtp-2018-0024

Keywordsthe Central Bank of the Republic of Turkey, inflation targeting, inflation expectations, decision makers and experts, autoregressive distributed lag approach

© 2018 Umit Bulut, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
the Central Bank of the Republic of Turkey, inflation targeting, inflation expectations, decision makers and experts, autoregressive distributed lag approach