Causal Relationship Between Relative Price Variability and Inflation in Turkey:

• Main Authors: Nebiye Yamak, Sinem Kocak, Fatma Kolcu
• Format: Article
• Language: English
• Published: Editura ASE Bucuresti 2016-09-01
• Series: Romanian Economic Journal
• Subjects: Variability Hypothesis; Inflation Rate; Relative Price Variability; Panel Causality
• Online Access: http://www.rejournal.eu/article/causal-relationship-between-relative-price-variability-and-inflation-turkey-evidence-panel

This study investigates the causal relationship between inflation and relative price variability in Turkey for the period of January 2003-January 2014, by using panel data. In the study, a Granger (1969) non-causality test in heterogeneous panel data models developed by Dumitrescu and Hurlin (2012) is utilized to determine the causal relations between inflation rate relative price variability. The panel data consists of 4123 observations: 133 time observations and 31 cross-section observations. The results of panel causality test indicate that there is a bidirectional causality between inflation rate and relative price variability by not supporting the imperfection information model of Lucas and the menu cost model of Ball and Mankiw.