DETERMINANTS OF INFLATION IN TURKEY AMID ECONOMIC AND GEOPOLITICAL TURMOIL

Abstract

This study aims to investigate the factors influencing inflation in Turkey between 2006:1-2023:11, taking into account the structural changes that occurred during periods of significant economic, political and geopolitical turmoils. For this purpose, we employ the Hacker and Hatemi-J (2006) bootstrap causality test along with the Fourier Toda-Yamamoto bootstrap causality to capture structural changes. Our findings indicate that when structural changes are taken into account, the drivers of inflation are monetary factors such as the money supply and exchange rate. Furthermore, an exogenous factor such as the oil prices is not a determinant of inflation, suggesting that inflation is a domestic factor. Given these findings, the study emphasizes the importance of strong and stable monetary policies in Turkey to control inflation and achieve price stability.

Keywords

• Inflation
• Monetary Policy
• Oil Prices
• Minimum Wage
• Fourier Causality Test.

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