پویایی تورم و سیاست پولی : برخی از چشم اندازها برای اقتصاد ترکیه

This paper analyzes the dynamics of inflation in the Turkish economy, which has experienced increasingly high levels of inflation over the last 30 years. By conducting a Vector Autoregression (VAR) analysis, the variance decomposition (VDC) and the impulse response functions (IRF) show that the relatively high and inertial nature of inflation mainly stems from the increases in public sector prices and the depreciation of the Turkish lira. On the other hand, the Granger causality tests as well as the VDC and IRF demonstrate that high prices have not been as a result of an expansionary monetary policy. These results together with the previous results show that inertial inflation is not a monetary phenomenon in Turkey, but rather an outcome of a political misconduct, which therefore shows the fiscal dominance.

During the last 30 years, Turkish economy has experienced relatively high levels of inflation. Large budget deficits in addition to high and rising real interest rates fed into high inflation, and in turn, are fed by high inflation and the associated risks. Yet, chronic and high inflation has not degenerated into hyperinflation as it did in most other countries. However, the average of about 20% inflation rate in the 1970s, and 60% in the late 1980s and early 1990s, and finally, 80% in the late 1990s clearly show the persistence and the upward trend in inflation. It is commonly argued that high and persistent inflation in Turkey has been fed by:1 a. High public sector budget deficits, b. Monetization of public sector budget deficits, c. Immense infrastructure investments such as Southeastern Anatolian Project, d. High military expenditures including the fight against terrorism attacks, e. Political instability and populist election economy policies, f. High real interest rates and risk premium due to high public sector borrowing requirement, g. Increasing regulated prices for the public sector products such as gasoline, utilities, h. Devaluations that feed into inflation by exchange rate pass-through, mechanism, i. External shocks such as oil price increases, Persian Gulf crisis, Russian crisis, 2 devastating earthquakes, j. Persistent inflationary expectations. The aim of this paper is to provide an analysis on the sources of inflation. In doing so, the dynamics of inflation is studied by conducting a Vector Autoregression (VAR) analysis. The results of the variance decomposition (VDC) analysis and the impulse response functions (IRF) show that inflation has been mainly fed from two sources: the public sector prices and the pass through from exchange rate to domestic prices. The paper proceeds as follows: The following section gives an overview of the previous studies on the dynamics of persistent inflation. The following section presents the empirical evidence on the inertial nature of the inflation in Turkey. Finally, the last section concludes this paper.

The results of the analysis once again show the persistent nature of the inflation process in Turkey. Two main channels that feed this inertial process are the increases in public sector prices and the depreciation of the Turkish lira. As for the increases in public sector prices, there is no room for monetary policy to be effective and the disinflation attempt can be a success only by a cooperative action of the government with the Central Bank. The current exchange rate regime is compatible with a disinflation scheme unless too much volatility is allowed for. Previous studies show that exchange rate pass-through is even more significant when there is excess volatility in the exchange rates (Eyigüngür & Us, 2002). Furthermore, exchange rate pass-through is asymmetric in the sense that, in absolute terms, the impact of depreciation on inflation is greater than that of an equal amount of appreciation. Therefore, it should be kept in mind that policies to strengthen Turkish lira that are not based on fundamentals would eventually bring depreciation of the Turkish lira. In the meantime, the downward pressure on inflation due to strengthening of the Turkish lira will bounce back once the Turkish lira starts to depreciate. Another tool that can be used effectively by the Central Bank in order to conduct a disinflationary monetary policy is through changing expectations. In order to break the habit of backward indexation via building rational expectations (or near-rational expectations), the Central Bank should maintain its commitment to price stability in order to enhance its credibility. In the meantime, there should not be any uncertainty concerning monetary policy for which the increased transparency will be elementary. In this respect, the Central Bank should continue to inform public regularly and immediately of any relevant information and policy changes. Additionally, the public should be made well aware of the independency of the Central Bank so that a disinflation attempt can continue despite any probable political crisis. Therefore, credibility of the CBRT (Central Bank of the Republic of Turkey) is sine qua non- a primer ingredient for the success of the disinflation attempt as well as the sustainability of a low inflationary environment while simultaneously maintaining economic growth. As a matter of fact, the latest data on the credibility gap, as measured by the difference between the year-end inflation expectations and the inflation target is observed to be declining which proves that the monetary policymakers have learned from the mistakes of the past (Fig. 3). Alternative credibility gap measure as calculated by the difference between the 12-month expected CPI inflation and the targeted CPI inflation path shows that the credibility gap has been on a declining trend on a continuous basis since April 2003 before which the unfavorable developments concerning the Iraqi war has contributed to the lessened credibility on behalf of the CBRT. Another decline in the credibility had been observed after May 2002, which coincides with adverse developments regarding the health condition of the former prime minister. The early general elections in November 2002 alleviated the pressure, which however was then fueled by the developments regarding the Cyprus issue, debates over accession to EU as well as the Iraqi war.The formerly used measure for credibility gap- the difference between the year-end target and the year-end expectations of inflation on the other hand shows a slightly different pattern than the alternative credibility gap measure such that according to the above discussion, the unfavorable health condition of the former prime minister has been effective on the lessened credibility of the CBRT while, the former credibility gap measure is shown to be only slightly affected by this incident. Despite this little difference however, both measures show that CBRT gained considerable credibility beginning by the end of the first quarter in 2003 (Fig. 4).The favorable inflationary developments as represented by a decline as well as stabilization in the actual monthly CPI inflation and the expected CPI inflation support the view that credibility gain does not come in vain. Another remark is that at times during the CBRT was losing credibility; the inflation had been on an upward trend. On the contrary, during times of credibility gain, the inflation had not necessarily been on a declining trend (Fig. 5). This observation strengthens the view that credibility loss feeds into higher inflation. Yet, a higher credibility does not always result in lower inflation. However, in spite of the soft evidence on the asymmetric relation between the credibility and the inflation, the overall picture shows that, notwithstanding the fluctuations, the monthly CPI inflation had been moving to a lower plateau year by year. A further striking remark is on the relation between the actual and expected inflation figures such that there is a stronger parallelism between the movement of the actual inflation and the expected inflation as the inflation drops and stabilizes.Another quick glance shows that the improvement in the co-movement of actual and expected inflation is achieved as the disinflation program is implemented with no concession such that the correlation between the expected inflation and the actual inflation during August 2001–February 2003 is 0.882. However, splitting the sample period as August 2001–2002 and 2003–February 2004, the correlation coefficients differ significantly such that, in the first sub-period the correlation is 0.825 and the in the latter period, the correlation coefficient is 0.921. The increase in the size of the correlation coefficient in the second period imply an improvement in the expectations—an accomplishment which can be attributed to the successful implementation of the program. The overall analysis once again shows that the disinflation process, even though on the right track as measured by both the lessened volatility of the inflation as well as the lower inflation figures in addition to narrowed credibility gap, is still sensitive to news. However, a salutary development on the disinflation front is as the disinflation process is better perceived by the economic units, there is less news effect and therefore a better signal of an independent Central Bank. Yet, the asymmetric response of inflation to economic fundamentals still remains as a concern.4 The continued success of the fight against inflation is mostly dependent on the structural programs, most of which are still to come. Structural reforms serve two purposes: The implementation of the structural reforms will raise credibility as the reforms are performed successfully. Additionally and most importantly, the reforms will found the basis for a stable economy with a sustainable growth rate and lower interest rates maintained through low inflation and low fiscal burden as well as a strong currency. Therefore, in the coming period, the emphasis on the structural reforms should be reinforced for the sustainability of low inflation and economic growth.