Price-Money Relationship After Inflation Targeting: Cointegration Test With Structural Breaks For Turkey and Brazil

Yıl 2015, Cilt: 5 Sayı: 3, 701 - 708, 01.09.2015

Cuneyt Dumrul Yasemin Dumrul

Öz

The inflation targeting (IT) strategy may create structural changes in macroeconomic variables. This study analyzes the effect of the IT strategy on the price-money supply relationship in Turkey and Brazil by Kejriwal-Perron cointegration analysis with structural breaks. The analysis aims to determine whether the IT strategy leads to regime shifts in the price index-money supply relationship in Turkey and Brazil. The Kejriwal-Perron tests reveal a structural break in the price-money supply relationship as a result of the IT strategy. In both countries, the implementation of this strategy leads to a decrease in the regime coefficients for Turkey while it creates an increase for Brazil. When Turkey and Brazil are compared in terms of money-price relationship after the IT strategy, the study reveals that it has weakened more in Brazil.

Anahtar Kelimeler

Monetary Inflation, Inflation Targeting, Kejriwal-Perron Cointegration Analysis, Regime Shifts.