An inflation model for the Turkish economy 1950-1990

Abstract

This study investigates the inflationary aspects of Turkish Economy in the period 1950-1990 and presents a model to investigate quantitatively Turkish inflation experience in those years. The expectations are assumed to be formed adaptively and the levels of economic activity and prices are taken to be determined by the equilibrium of demand arising from the money market and a supply schedule which assumes that production respond positively to unexpected price increases. The model constructed in that line is tested. In addition to these, import pjrices are also i ncor p)or ated in the supply function because of the import dependence in the manufacturing sector of Turkey. Price expectations and import price changes are found to be significant in determining the price level, whereas the money growth is insignificant as its affect is captured by the expectations variable. The interest rate is also insignificant, but this is mainly due to that it was restricted before 1980, and a stability test on this variable show that interest rate is in fact influential after 1980 and insignificant before that year.