چکیده:
This study investigates the empirical validity of the variability hypothesis in Turkey for the period of February 2005-November 2015، by using cross-sectional relative price data and by focusing on the assumptions of linearity and stability. The linearity assumption between the two variables is ensured by estimating quadratic regression equation. The assumption of stability is secured by utilizing the Kalman filter approach. The Kalman filter estimates of the regression coefficients suggest that there exists a time varying U-shaped relationship between inflation and cross-sectional relative price variability in Turkey. Time variation on the regression coefficients and the U-shaped curve is significant. The annualized inflation rate which minimizes cross-sectional relative price variability varies from 8.7% to 9.4%.
خلاصه ماشینی:
Cross-Sectional Relative Price Variability and Inflation in Turkey: Time Varying Estimation Rahmi Yamak1, Havvanur Feyza Erdem2 Received: 2016/04/05 Accepted: 2016/04/30 Abstract his study investigates the empirical validity of the variabilityhypothesis in Turkey for the period of February 2005-November2015, by using cross-sectional relative price data and by focusing on the assumptions of linearity and stability.
The Kalman filter estimates of the regression coefficients suggest that there exists a time varying U-shaped relationship between inflation and cross-sectional relative price variability in Turkey.
Inflation, Cross-Sectional Relative Price Variability, KalmanFilter, U-Shape, Optimal Inflation, Time Varying Coefficient 1.
Introduction In the literature of economics, the variability hypothesis implies a positive relationship between relative price variability (hereafter RPV) and inflation.
The menu cost model theoretically developed by Ball and Mankiw (1994) predicts that the positive relationship runs from expected inflation to RPV because of firms’ sluggish price adjustment process.
Most of the empirical studies, including Parks (1978), Lach and Tsiddon (1992), Domberger (1987), Fischer (1981), Hercowitz (1981), and Cukierman (1979) found a positive and linear relationship between inflation and RPV.
Empirical results In the first step, equation 1 is estimated by the OLS, assuming that the relationship between inflation and cross-sectional RPV is time invariant.
According to the results of the Kalman filter estimation in this study, the monetary policy applied in Turkey for the period of 2005-2015 is mostly effective in keeping optimal inflation rate for cross-sectional RPV.
Conclusion The main objective of this study was to empirically investigate the effects of the aggregate inflation rate on cross-sectional RPV by allowing the relationship to be time varying and U-shaped.