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High versus Low Inflation: Implications for Price-Level Convergence

32 Pages Posted: 26 May 2010 Last revised: 22 Nov 2016

Mustafa Ege Yazgan

Istanbul Bilgi University

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Date Written: May 4, 2015

Abstract

This paper investigates the relationship between the level of inflation and regional price-level convergence utilizing micro-level price data from Turkey during two clearly distinguishable periods of high and low inflation. The results indicate that higher persistence and slower convergence of price levels are evident during the low-inflation period, which corresponds to the inflation-targeting (IT) regime that was successful in lowering and maintaining inflation at acceptable levels. During this low-inflation IT regime, it is also shown that inflation convergence across regions appears to occur more quickly and may be responsible for the slower pace of convergence in price levels.

Keywords: Price Convergence, Inflation Convergence, Micro-level Prices, Turkey

JEL Classification: E31, F41

Suggested Citation

Yazgan, Mustafa Ege and Yilmazkuday, Hakan, High versus Low Inflation: Implications for Price-Level Convergence (May 4, 2015). Empirical Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1616159 or http://dx.doi.org/10.2139/ssrn.1616159

Mustafa Ege Yazgan

Istanbul Bilgi University ( email )

Eski Silahtarağa Elektrik Santralı
Silahtarağa Mah. Kazım Karabekir Cad. No: 1 Eyüp
Istanbul, 34060
Turkey

Hakan Yilmazkuday (Contact Author)

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

11200 SW 8th Street
Miami, FL 33199
United States

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