Abstract
Abstract. A relationship between the macro shocks and the long-term inflation expectations leads to questioning the credibility of a central bank. This paper investigates the credibility of the Central Bank of Turkey by analyzing the anchoring effect of the long-term inflation expectations by using the uncertainty indicator. We conduct the analysis with the structural VAR method using survey-based inflation expectations data as well as economic uncertainty index data developed for the Turkish economy. Our results provided evidence in favor of the existing de-anchoring process and imply that the monetary policy is not fully credible in Turkey during the period under investigation.
Keywords. Inflation expectations, Structural VAR, Credibility, Anchoring, The Turkish economy, Uncertainty.
JEL. E52, E58.References
Autrup, S.L., & Grothe, M. (2014). Economic surprises and inflation expectations. Has anchoring of expectations survived the crisis? European Central Bank, Working Paper, No.1671. Accessed: 18 December, 2018. [Retrieved from].
Başkaya, S., Kara, H., & Mutluer, D. (2008). Expectations, communication and monetary policy in Turkey. CBRT, Working Paper, No.08/01. Accessed: 18 December 2018. [Retrieved from].
Bauer, M.D. (2015). Inflation expectations and the news. International Journal of Central Banking, Vol. 11. Accessed: 12 December 2018. [Retrieved from].
Beechey, M.J., Johannsen, B.K., & Levin, A.T. (2011). Are long-run inflation expectations anchored more firmly in the EURO area than in the United States? American Economic Journal: Macroeconomics, 3(2), 104-129. doi. 10.1257/mac.3.2.104
Berk, J.M., & Hebbink, G. (2006). The anchoring of European inflation expectations. DNB Working Paper, No.116. Accessed: 01 January 2019. [Retrieved from].
Bomfim, A.N., & Rudebusch, G.D. (2000). Opportunistic and deliberate disinflation under imperfect credibility. Journal of Money, Credit and Banking, 32(4), 707-721. doi. 10.2307/2601179
Çiçek S., & Akar, C. (2014). Do inflation expectations converge toward inflation target or actual inflation? Evidence from expectation gap persistence. CBRT, Central Bank Review, 14, 15-21.
Çiçek, S., Akar, C., & Yucel, E. (2011). Türkiye’de enflasyon beklentilerinin çapalanması ve güvenilirlik, Iktisat, Isletme ve Finans, 26(304), 37-55.
Demertzis, M., Marcellino, M., & Viegi, N. (2009). Anchors for inflation expectations, DBN Working Paper, No.229. Accessed: 01 December 2018. [Retrieved from].
Erdem, H.F., & Yamak, R. (2016). Measuring the optimal macroeconomic uncertainty index for Turkey. Economic Annals, LXI(210), 7-22. doi. 10.2298/EK A1610007E
Ermişoğlu, E., & Kanık, B. (2013). Turkish economic policy uncertainty index. MPRA Archive, Paper, No.49920. [Retrieved from].
Galati, G., Poelhekke, S., & Zhou, C. (2011). Did the crisis affect inflation expectations? International Journal of Central Banking. 7(1), 167–207.
Garcia, J.A., & Werner, S. (2018). Inflation news and Euro area inflation expectations. IMF Working Paper, No.167. [Retrieved from].
Gefang, D., Koop, G., & Potter, S. (2012). The dynamics of UK and US inflation expectations. SIRE Discussion Paper, No.59. 10.1016/j.csda.2011.07.008
Gürkaynak, R.S., Levin, A., & Swanson, E. (2010). Does inflation targeting anchor long-run inflation expectations? Evidence from the U.S., UK, and Sweden. Journal of the European Economic Association, 8(6), 1208-1242. doi. 10.1111/j.1542-4774.2010.tb00553.x
Hachula, M., & Nautz, D. (2018). The dynamic impact of macroeconomic news on long-term inflation expectations. Economics Letters, 165(C), 39-43. 10.1016/j.econlet.2018.01.015
Jochmann, M., Koop, G., & Potter, S.M. (2010). Modelling the dynamics of inflation compensation. Journal of Empirical Finance, 17(1), 157-167. 10.1016/j.jempfin.2009.08.002
Kara, H., & Küçük-Tuğer, H. (2010). Inflation expectations in Turkey: Learning to be eational. Applied Economics, 42(21), 2725-2742. 10.1080/00036840801964559
Lemke, W., & Strohsal, T. (2013). What can break-even inflation rates tell us about the anchoring of inflation expectations in the Euro area? Annual Conference 2013, Duesseldorf. [Retrieved from].
Lyziak, T., & Paloviita, M. (2016). Anchoring of inflation expectations in the Euro area: Recent evidence based on survey data. European Central Bank, Working Paper, No.1945. [Retrieved from].
Mehrotra, A.N., & Yetman, J. (2014). Decaying expectations: What inflation forecasts tell us about the anchoring of inflation expectations. BIS Working Paper. No.464. [Retrieved from].
Narayan, S. (2013). A structural VAR model of the Fiji Islands. Economic Modelling, 31, 238-244. doi. 10.1016/j.econmod.2012.11.014
Nautz, D., Netsunajev, A., & Strohsal, T. (2016). The anchoring of inflation expectations in the short and in the long run. SFB 649 Economic Risk, Discussion Paper, No.2016-015. 10.1017/s1365100517000517
Sims, C.A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1-48. doi. 10.2307/1912017
Tsenova, T. (2012). Are long-term inflation expectations well-anchored? Evidence from the Euro area and the United States. Bulgarian National Bank, Bulletin of Economic Research No.67-1. [Retrieved from].
Yellen, J.L. (2015). Inflation dynamics and monetary policy. Speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Massachusetts, 2015-09-24. [Retrieved from].
Yıldırım, H. & Alkan, B. (2018). Türkiye için bir makroekonomik belirsizlik endeksi önerisi, TBB, Bankacılar Dergisi, 104, 6-24.