OECD Journal: Journal of Business Cycle Measurement and Analysis

The Journal of Business Cycle Measurement and Analysis has been discontinued as of 24 June 2016. This journal was published jointly with CIRET from 2004 to 2015. For more information see www.ciret.org/jbcy.


Keywords: business tendency, economic measurement, economic statistics, cyclical indicators, business surveys, business cycles, economic research, business investment, consumer surveys, economic indicators, economic cycle, cyclical fluctuations, short-term, economic analysis

Inflation Expectations in Turkey

Evidence from Panel Data

We investigated the rationality of financial and real sectors’ CPI inflation expectations in Turkey using the multivariate panel cointegration method. The use of panel techniques strengthened our empirical results by not only increasing sample size but also allowing heterogeneity across groups of respondents. Having found the expectations irrational in the stricter sense, we proceeded to analyze the significance of both past and future inflation rates as determinants of agents’ future inflation forecasts. Both recursive and rolling estimates show that forecasters’ weight on future/target inflation rates versus past actual and expected inflation rates changes over time as unexpected shocks derail inflation from its disinflationary path. Lastly, we find asymmetry in expectations such that the response of inflation expectations to an increase in the inflation rate is twice the size of the response to a decrease in the inflation rate. This may indicate long delays in restoring credibility of central banks after a positive shock on the inflation rate. JEL Classifications: C23, D84, E31 Keywords: Inflation expectations, Inflation formation, Panel cointegration, Recursive regression


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