Measuring Consumer Inflation Expectations in Turkey

Eastern European Business and Economics Journal, 2016, vol. 2, issue 1, 43-74

Abstract: 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 (search for similar items in EconPapers)
Date: 2016
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