How to predict inflation in Turkey?

Abstract

ABSTRACT In the research reported here, the best model which explains the inflation in Turkey is generated by analysing several models used throughout the world and Turkey. The Model which is taken to be the most reliable model in explainig inflation in Turkey is a version of the model which is generated by Erdinç özselçuk -from Türkiye Sinai Kalkınma Bankası A. S« This model is improved by playing around with the independent variables, running lots of different regressions and plotting many graphs to catch the best combination of independent variables and the dependent variable, price. Findings in the research show that the Reserve Money, M, is a better explanatory variable than Narrow Money, Ml, which is used in the original model. It is also observed that the Gross National Product in the analysed period, t, is a more powerful explanatory variable then the Gross National Product in the previous period and the period before that. Besides, the price of imported petroleum in the analyzed period, t, is more powerful in explaining the prices in period, t, than the petrol prices in two or three periods before. Another important implication of the study is that smaller models such as the one generated in this research are better in the sense of reliability and validity than bigger and complicated models such as TUSIAD's, for the explanation of short-term inflation in Turkey.