RELATIONSHIP BETWEEN EXPECTED AND ACTUAL INFLATION IN TÜRKİYE

Year 2023, Volume: 3 Issue: 2, 43 - 62, 30.12.2023

Serhat Alpağut

Abstract

Expectations are an important component that directly or indirectly affects all macroeconomic indicators. The final results in the economy are a realization of the predictions made previously. Decision units make a prediction with their information set, whether they have Adaptive or Rational expectations, and make economic decisions according to these predictions. Thus, expectations become a reality. Relevant theories show that there is a positive relationship between inflation and expected inflation and that there are transmission channels that ensure positivity. However, in some special cases (Central Banks' policy preferences, devaluations, monetary policy errors, or temporal errors in policy implementation), this positivity may be disrupted. While some studies indicate that until a certain period, there was a positive and harmonious movement between expected and actual inflation in Türkiye, some recent studies provide evidence that this harmony and positivity has deteriorated. This study also re-evaluates the relationship between expected and actual inflation. As a result of the study, it was determined that there is a negative relationship between the variables and unidirectional causality from expected inflation to actual inflation.

Keywords

Expected Inflation, Actual Inflation, GMM Estimate

References

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