High Versus Low Inflation: Implications on Price-Level Convergence

Abstract:     
This paper tests the price-level convergence among the regions of Turkey at the good level by using a new approach which is free of problems arising from arbitrary benchmark, cross-section dependence, and heterogeneity. There is evidence in favor of convergence for both high- and low-inflation regimes, where the former coincides with stronger evidence on convergence among regions, and the latter coincides with faster convergence rates. Compared to the results of previous studies, the regional convergence rates in Turkey appear to be slower than in China and Russia, closer to in Canada and India, and much faster than in the United States, European Union, OECD countries and Indonesia, raising the question of whether formerly socialist (or mostly closed) economies have a higher recent level of inner economic integration compared to capitalist countries; the results are against the PPP puzzle.

Number of Pages in PDF File: 32

Keywords: Convergence, Half-lives, Micro-Level Prices, Turkey

JEL Classification: E31, F41

working papers series