ESTIMATION OF UNDERLYING INFLATION IN TURKEY: A DYNAMIC FACTOR MODEL APPROACH

Date

2024-5

Author

Çapan, Merve

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A measure of underlying inflation is helpful for monetary policymakers, academics, economic analysts, and long-term investors. Traditional measures of underlying inflation ignore or down-weight the more volatile sub-components of the consumer price index (CPI), thereby omitting information helpful in assessing current and future inflation trends. This paper proposes a new indicator of underlying inflation. It is constructed using monthly inflation of 5-digit disaggregated price data from the CPI and is based on an econometric modeling technique called a dynamic factor model. Then, with this new measure, the performance of the commonly used measures of underlying inflation for the Turkish economy is analyzed. The results indicate that the new indicator provides a good measure of underlying inflation and is a valuable tool for policy analysis.

Subject Keywords

Underlying Inflation, Dynamic Factor Model, Monetary Policy

URI

https://hdl.handle.net/11511/109498

Collections

Graduate School of Social Sciences, Thesis