Inflation Targeting, Flexible Exchange Rates and Inflation Convergence

17 Pages Posted: 16 Oct 2007 Last revised: 19 Dec 2011

See all articles by Hakan Yilmazkuday

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Date Written: December 1, 2011

Abstract

Using a disaggregated-level CPI data, this paper compares convergence properties of regional inflation rates in a small-open economy, Turkey, between pre-inflation-targeting and inflation-targeting periods, where the latter also corresponds to a flexible exchange rate regime. It is found that during the inflation-targeting period, Turkish regional inflation rates have converged to each other in terms of CPI groups with relatively non-tradable components, while they have diverged from each other in terms of CPI groups with relatively tradable components. Since a common and sound monetary policy among the regions of a country is supposed to have a convergence effect on regional inflation rates according to the conventional wisdom, the results for CPI groups with relatively tradable components require further attention and have significant policy implications, especially for inflation-targeting countries using flexible exchange rate regimes.

Keywords: Inflation Targeting, Inflation Convergence, Regional Analysis, Turkey

JEL Classification: E31, E50, E52, R12

Suggested Citation

Yilmazkuday, Hakan, Inflation Targeting, Flexible Exchange Rates and Inflation Convergence (December 1, 2011). Applied Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1021281

Hakan Yilmazkuday (Contact Author)

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

HOME PAGE: http://faculty.fiu.edu/~hyilmazk/

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