Oral E. 2016. Measuring Consumer Inflation Expectations in Turkey. Eastern European Business and Economics Journal 2(1): 43-74.
Robert CZUDAJ, University of Duisburg-Essen, Germany;
Miroslav MATEEV, American University in Bulgaria, Bulgaria;
Olena SOKOLOVSKA, Institute Of Industrial Economics of National Academy of Sciences of Ukraine, Ukraine.
The ability to measure inflation expectations is an integral part of central bank policy especially for central banks that are implementing inflation-targeting regime. A forward-looking perspective is essential to the success of inflation targeting. Therefore, a central bank having the primary objective of price stability is interested in inflation expectations. The main aim of this paper is to construct direct measures of the consumer inflation expectations and to examine the nature of consumer inflation expectations in Turkey. Qualitative data on inflation expectations obtained from surveys can be quantified into numerical indicators of the expected inflation. This paper presents the results of different quantification techniques such as Carlson-Parkin, balance and regression methods. These methods are compared with each other and the regression method is found to be the closest one to realizations. In addition, unbiasedness assumption is tested and rejected. After rejecting a rational model, hybrid model of expectations formation is considered. The “pure” backward and forward looking expectations hypotheses are rejected. There exists the strong backward looking nature of expectations in the long run.
Keywords: Consumers, Inflation Expectations, Survey Data, Quantification Methods
JEL codes: C1, C83, D84, E31, N3
Anderson, O. (1952). The business test of the IFO-Institute for Economic Research Munich, and its theoretical model. Revue de l’Institut International de Statistique, 20, 1– 17.
Barro, R. J. (1977). Unanticipated Money Growth and Unemployment in the United States. American Economic Review, 67, 101-15.
Başkaya, S., Kara, H., & Mutluer, D. (2008). Expectations, Communication and Monetary Policy in Turkey. The Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Working Paper No:08/01.
Başkaya, S., Gülşen, E., & Kara, H. (2012). Inflation Expectations and Central Bank Communication in Turkey. Central Bank Review, Vol. 12 (July 2012), 1-10.
Batchelor, R. A. (1982). Expectations, Output and Inflation, The European Experience. European Economic Review, 17, 1-25.
Batchelor, R. A., & Orr, A. B. (1988). Inflation expectations revisited. Economica, 55, 317-31.
Berk, J. M. (1999). Measuring inflation expectations: a survey data approach. Applied Economics, 31, 1467-1480.
Berk, J.M., & Hebbink, G. (2009). The European consumer and monetary policy. Chapter 9 in: P.J.N. Sinclair, (ed.). Inflation Expectations. London and New York: Routledge.
Borak, S., Hardle, W., & Weron, R. (2005). Stable Distributions. SFB 649 Discussion Paper 2005-008, Humboldt-Universität zu Berlin.
Carlson, J. A., & Parkin, M. (1975). Inflation Expectations. Economica, Vol: 42, 123-138.
Carlson, J.A., & Valev, N.T. (2002). A Disinflation Tradeoff: Speed Versus Final Destination. Economic Inquiry, 40, 450-456.
Driver, R., & Windram, R. (2007). Public attitudes to inflation and interest rates. Bank of England Quarterly Bulletin, Vol. 47, No. 2, 208–23.
Fama, E.F., & Roll, R. (1968). Some Properties of Symmetric Stable Distributions. Journal of the American Statistical Association, 63, 817-835.
Forsells, M., & Kenny, G. (2002). Survey expectations, rationality and the dynamics of euro area inflation. Paper presented to 26th CIRET Conference.
Gerberding, C. (2001). The Information content of Survey Data on Expected Price Developments. Economic Research Centre of the Deutsche Bundesbank, Discussion Papers 9.
Heinemann, F., & Ullrich, K. (2006). The Impact of EMU on Inflation Expectations. Open Economies Review, 17 (2), 175-195.
Kara, H., & Küçük Tuğer, H. (2005). Some Evidence on the (Ir)rationality of Inflation Expectations in Turkey. The Central Bank of the Republic of Turkey, Working Paper 50/12.
Kara, H., & Küçük-Tuğer, H. (2010). Inflation Expectations in Turkey: Learning to be Rational. Applied Economics, 42(21), 2725-2742.
Karadaş, E., & Öğünç, F. (2005). An Analysis of Inflation Expectations of the Turkish Private Manufacturing Industry. Central Bank Review, 2, 57-83.
Keane, M. P., & Runkle, D. E. (1990). Testing the Rationality of Price Forecasts: New evidence from Panel data. The American Economic Review, 80 (4), 714-735.
Kershoff, G. (2000). Measuring Business and Consumer Confidence in South Africa. Bureau for Economic Research, Stellenbosh, December.
Lucas, R. E. (1972). Econometric testing of the natural rate hypothesis, in Eckstein, O. (ed.), The Econometrics of Price Determination, Conference, Washington DC.
Lucas, R. E. (1975). An Equilibrium Model of the Business Cycle. Journal of Political Economy, 83, 1113-44.
Lyziak, T. (2010). Measurement of perceived and expected inflation on the basis of consumer survey data. IFC Working Papers, No 5.
Lyziak, T. (2012). Inflation expectations in Poland. National Bank of Poland Working Papers, 115.
Mitchell, J. (2002). The use of non-normal distributions in quantifying qualitative survey data on expectations. Economics Letters, 76, 101-107.
Millet, F.C. (2006). Finding the optimal method of quantifying inflation expectations on the basis of qualitative survey data. Manuscript, Balliol College, University of Oxford.
Muth, J. F. (1961). Rational Expectations and the Theory of Price Movements. Econometrica, 29, 315-35.
Nielsen, H. (2003). Inflation Expectations in the EU – Results from Survey Data. Discussion Paper, FU and HU Berlin.
Oral, E, Saygılı, H., Saygılı M., & Tuncel, S. O. (2009). An Assesment of the CBRT’s Survey of Expectations. Journal of Economics Business and Finance, 24(276), 23-51, March.
Oral, E, Saygılı, H, Saygılı M., & Tuncel, S. O. (2011). Inflation Expectations in Turkey: Evidence from Panel Data. OECD Journal: Journal of Business Cycle Measurement and Analysis, 1, 5-28.
Oral, E. (2013). Consumer Inflation Expectations in Turkey. IFC Working Papers, Bank for International Settlements, No. 10, May.
Pesaran, M. (1984). Expectations formation and macroeconomic modelling. In P. Magrange, & Muet, P., Contemporary Macroeconomic Modelling (pp. 27–53). Oxford: Blackwell
Pesaran, M. H. (1987). The Limits to Rational Expectations. Oxford: Basil Blackwell.
Pesaran, M.H. (1989). The Limits to Rational Expectations. Oxford and New York: Blackwell.
Rodriguez, A., & Uriz, P. (2013). Consumer Inflation Expectations: Determinants and Threshold Levels. BBVA Mexico Economic Watch, April 5.
Sargent, T. J. (1973). Rational Expectations, the Real Rate of Interest and the Natural Rate of Unemployment. Brookings Papers on Economic Activity, No. 2, 429-72.
Theil, H. (1952). On The Time Shape of Economic Microvariables and the Munich Business Test. Revue de l’Institut International de Statistique, 20, 105–120.
Tyagi, S.N.S., (2009). Results of inflation expectations survey of households. IFC Bulletin, No. 30, 36-51.
User Guide (2003). The Joint Harmonised EU Programme Of Business And Consumer Surveys. European Commission Directorate General Economic And Financial Affairs.
Zolotarev, V.M. (1986). One-Dimensional Stable Distributions. Translations of Mathematical Monographs, Vol 65, American Mathematical Society, Rhode Island: Providence.