Relative Price Variability : The Case of Turkey 1994-2002

Relative price variability leads to inefficiencies in the allocation of resources that reduce real income (Fischer, 1981). Given the costs associated with relative price variability, the relation between inflation and relative price variability was extensively researched and a positive relation between the two was documented for many countries and for varying time periods. Furthermore, one of the main sources of relative price variability being differential speeds of price adjustment in different sub-sectors, renders the investigation of relative price variability valuable also in terms of understanding the inflationary dynamics. In this paper, highly disaggregated data based on 103 classification of Turkish CPI for the period between January 1994 and December 2002 are utilised. The statistical findings based on Theil (1967) measure of relative price variability, are analyzed from different perspectives : seasonal pattern, time aggregation, different sub-groups, e.g. tradable/non-tradable prices, administered/non-administered prices etc. Resulting stylized facts about recent dynamics of inflation are presented. The relation between relative price variability and inflation is verified by carrying out model-free regressions. The results show that there is a positive contemporaneous association between relative price variability and inflation in Turkey. Besides, inflation is found to Granger-cause relative price variability. These conclusions are shown to be robust to the degree of commodity aggregation.Relative Price Variability, Inflation, Turkish Inflation

Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?

This study analyses the impact of exchange rates on domestic prices in Turkey. We seek to demonstrate the variations (if any) in the exchange rate pass-through across different exchange rate regimes, identify the determinants of this change, and characterize the degree and extent of pass-through across different sub-sectors. Our empirical results reveal that the pass-through of exchange rates to domestic prices has declined in the post-2001 period in comparison with the earlier episodes –thanks to a decline in the “indexation” behavior. These findings suggest that switching to floating exchange rate regime and implementing an ambitious disinflation policy have contributed, to a large extent, to the reduction in the pass-through. Nevertheless, the impact of exchange rate on inflation, especially in the traded good is still notable, pointing out that the effect of nominal exchange rate movement on relative prices have increased in the float period.Exchange rate pass-through, Time-varying parameters, Seemingly unrelated regressions, Disinflation, Floating exchange rate regime