Inflationary Effects of Oil Prices in Turkey: A Regime-Switching Approach


ÇATIK A. N. , ÖNDER A. Ö.

EMERGING MARKETS FINANCE AND TRADE, vol.47, no.5, pp.125-140, 2011 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 47 Issue: 5
  • Publication Date: 2011
  • Doi Number: 10.2753/ree1540-496x470506
  • Title of Journal : EMERGING MARKETS FINANCE AND TRADE
  • Page Numbers: pp.125-140
  • Keywords: inflation, Markov regime-switching models, oil shocks, pass-through, TURKISH PHILLIPS-CURVE, TIME-SERIES, EMERGING MARKETS, PARAMETER, STABILITY, MODELS

Abstract

This paper investigates the existence of oil pass-through to inflation for Turkey covering the period February 1996-May 2007. Oil price-augmented Phillips curves are estimated with linear and Markov regime-switching models. Markov regime-switching models reveal the asymmetric structure of oil pass-through and indicate the existence of two different regimes characterized as the high- and the low-inflation periods. We find evidence for asymmetric oil pass-through in the high- inflation regime for headline and food- and energy-excluded inflation measures. Our results suggest that Jarque-Bera core inflation is not affected by oil price variations under either inflationary environment. Hence, we suggest the Jarque-Bera indicator as an intermediate target in the analysis of the future trend of inflation.