Monetary policy, the price puzzle and inflation expectations: evidence from Türkiye

Authors : Oğuz Tümtürk

Pages : 14-28

View : 43 | Download : 24

Publication Date : 2025-06-30

Article Type : Research Paper

Abstract :This article mainly investigates the relationship between monetary policy and inflation in Türkiye. We also consider the impact of inflation expectations on domestic inflation. The inflation data in Türkiye reveals outliers due to frequently occurred political and economic instabilities, and hence exhibits tail dynamics. We differ from the traditional literature and aim to capture the asymmetry in the data by quantile regressions. Our results first show that monetary policy generates price puzzle. Second, we reveal that inflation expectations are crucial in the fight against inflation. Insignificant inflation responses of demand changes and recent distortions of inflation expectations both may explain why the demand channel has failed and domestic prices rise after an increase in interest rates. Third, our results imply that the lack of a proper international economic environment is also responsible for price increases. Finally, the results are robust to the use of alternative specifications, different measurement of monetary policy change and existence of structural breaks.
Keywords : Para Politikası, Fiyat Bulmacası, Asimetri

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