erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Inflation and Output Gap in Turkey

Zafer A. Yavan (TÜSİAD)
Şeref Saygılı (SPO)
Cihan Yalçın (CBRT)

Abstract

In this study different techniques are employed to estimate output gap measures for the Turkish economy in the period 1987-99. Through a well established inflation dynamics equation, various output gap measures are utilised in order to test demand presure on the inflation dynamics. The inflation dynamics equation is an ECM type equation and augments all unit cost items and inflation inertia for the non-agricultural sector.

Output gap are measured based on four different approaches:

1. Hodrick-Prescott

2. Static Production Function

3. Vector ECM Production Function

4. Frontier Production Function with Composite Error

While only the output gaps derived from approaches 1 and 4 turnes up along theoretical expectations with statistical significance, output gap additions to the original inflation equation reduce the fixed mark-up ratios in all cases.

Economic Research Center
Middle East Technical University
06531 Ankara Turkey
Phone: + 90 312 210 3044, 210 2003
Fax: +90 312 210 1244
e-mail: metuerc@metu.edu.tr