Inflation Targeting, Flexible Exchange Rates and Inflation Convergence
17 Pages Posted: 16 Oct 2007 Last revised: 19 Dec 2011
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Divergent Inflation Rates in Emu
By Philip R. Lane and Patrick Honohan
-
Euro Area Inflation Differentials
By Ignazio Angeloni and Michael Ehrmann
-
Regional Inflation in a Currency Union: Fiscal Policy vs. Fundamentals
-
Exchange Rates and Inflation Under Emu: An Update
By Patrick Honohan and Philip R. Lane
-
Exchange Rates and Inflation Under Emu: An Update
By Patrick Honohan and Philip R. Lane
-
Inflation Convergence and Divergence within the European Monetary Union
By Fabio Busetti, Lorenzo Forni, ...
-
Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the Us
-
Long-Run Determinants of Inflation Differentials in a Monetary Union
By Filippo Altissimo, Pierpaolo Benigno, ...
-
Long-Run Determinants of Inflation Differentials in a Monetary Union
By Filippo Altissimo, Pierpaolo Benigno, ...