Assessing trend and cycle components of inflation and employment in Türkiye

In this paper, we investigate the permanent and transitory components of both CPI inflation and Aggregate Employment in Turkiye. We construct an Unobserved Component Analysis Model (UCM) to measure trend inflation (employment) and cycle inflation (employment), and conduct empirical analyses to scrutinize the re- lations among these terms and other several macroeconomic variables such as the USDTRY Parity, Aggregate Credit Stock Growth in Turkiye and the Brent Oil prices. We show that the changes in the USDTRY Parity has statistically signif- icant and positive effect on cycle inflation. Further, we indicate that permanent component of inflation enlarged in recent years and that the volatility of employment increased since 2014. We provide historical decompositions of the CPI inflation and employment in Turkiye, and exhibit our empirical analysis.