Inflation across income groups: the case of Turkey

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2020-10
Çelik, Duygu
This study, covering the period from 2004 to 2018, investigates the inflation differentials across income groups and the determinants of group-specific inflation in Turkey. We use the micro-data from the Household Budget Survey and consumer price data to calculate group-specific inflation rates. We find that inflation differentials across income groups vary throughout time in Turkey. Lower-income groups have higher inflation exposures in first half the period under investigation, especially between 2008-2010, whereas the higher income groups face higher inflation rates in the second half of the period, especially after 2014. Over the period under investigation, higher-income groups experience a higher inflation rate by 0.25% relative to lower-income groups in Turkey. The main contributors to the lowest income group inflation are “food and non-alcoholic beverages” and “housing.” Contrarily, “transport,” “cafes, restaurants and hotels,” and “miscellaneous goods and services” accelerate the highest income group inflation. After investigating inflation differentials, we focus on the determinants of group-specific inflation rates in Turkey. For this purpose, we use the VAR (Vector Autoregression) model. Our findings demonstrate that exchange rate changes have a higher impact on both the lowest and the highest income group inflation, whereas world energy price changes have an impact only on the highest income group inflation. However, the magnitude of the impact of exchange rate varies across these groups; the highest income group inflation is more sensitive to the exchange rate changes than the lowest income group inflation.

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Citation Formats
D. Çelik, “Inflation across income groups: the case of Turkey,” M.S. - Master of Science, Middle East Technical University, 2020.