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Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model

Author

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  • K. Azim Özdemir
  • Mesut Saygılı

Abstract

This paper uses the P-star model to explain inflation dynamics in Turkey. In P-star models, money determines the price gap, which is postulated to measure the pressure on prices in an economy. This pressure emerges when output is above the potential, the interest rate is lower than the natural rate, or there is pure excess money in the economy. The estimation results with the Turkish data show that the price gap contains considerable information for explaining inflation dynamics. Moreover, the model selection criterion that compares the empirical performance of the P-star model with the new classical Phillips curve relation favors the P-star model over the Phillips curve relationship. We conclude that money is efficacious in predicting risk in price stability in Turkey.

Suggested Citation

  • K. Azim Özdemir & Mesut Saygılı, 2009. "Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(6), pages 69-86, November.
    • Handle: RePEc:mes:emfitr:v:45:y:2009:i:6:p:69-86
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    Citations

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    Cited by:

    1. Tomislav Globan & Vladimir Arčabić & Petar Sorić, 2016. "Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 154-168, January.
    2. Lillian Kamal, 2014. "Do GAP Models Still have a Role to Play in Forecasting Inflation?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(3), pages 1-12.
    3. Johannes VAN DER POL, 2016. "The modelling of networks using Exponential Random Graph Models: an introduction," Cahiers du GREThA (2007-2019) 2016-22, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    4. Johannes van Der Pol, 2017. "Introduction to network modeling using Exponential Random Graph models (ERGM)," Working Papers hal-01284994, HAL.
    5. K. Azim Özdemir & Mesut Saygılı, 2013. "Economic uncertainty and money demand stability in Turkey," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(3), pages 314-333, July.
    6. Cuneyt Dumrul & Yasemin Dumrul, 2015. "Price-Money Relationship after Infl ation Targeting: Co-integration Test with Structural Breaks for Turkey and Brazil," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 701-708.
    7. ali, ramsha, 2016. "Impact of inflation on the monetary policy: case study of Pakistan," MPRA Paper 92362, University Library of Munich, Germany.
    8. Emel Siklar & Ilyas Siklar, 2021. "Is There a Change in the Money Demand Stability in Turkey? A Nonlinear Approach," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 7(2), pages 28-42, 06-2021.
    9. Ari, Ali & Yılmaz, Ahmet & Cergibozan, Raif & Ozcan, Yunus, 2013. "The Inflation Dynamics of the Turkish Economy in 1990-2011 Period," MPRA Paper 95675, University Library of Munich, Germany.

    More about this item

    Keywords

    inflation dynamics; money demand; P-star;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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