An Assessment of Turkish Inflation Dynamics Based on Phillips Curve Variants With Import Price Index

Abstract

This study aims to present an assessment on Phillips curve models based on import price index in order to account for inflation dynamics in Turkey over the period 2002Q1:2021Q1 by employing state-space approach in potential output computations. In order to deal with the expectation terms in estimating equations and to avoid the associated endogeneity issue, the Generalized Method of Moments (GMM) technique has been used, and two distinct measures of output gap based on Hodrick-Prescott filter and Kalman Filter algorithm have been performed. First, the time varying slope coefficients regarding traditional hybrid Phillips curve (PC) have been estimated through rolling window approach for Turkey. Then, two variants of the hybrid PCs have been formulated by including import price index regressor to all of them and the forecasting performances of the models have been evaluated.