New keynesian phillips curve estimation: A monthly analysis for Turkey

Understanding the characteristics of inflation dynamics is important since the appropriate course of monetary policy depends on the nature of inflation dynamics. New Keynesian Phillips Curve (NKPC) enables to know about the price dynamics in an economy. In this study our aim is to estimate the NKPC for Turkey, so the average price stickiness duration for Turkey by using the methodology of Ahrens and Sacht (2014). We use monthly data for Turkey over the period January 1999 and March 2016. We estimate the model by using Generalized Methods of Moments (GMM) analysis with different instrument sets including change in inflation which is calculated by consumer price index, change in foreign country interest rate, and change in exchange rate. We use the sample data taken from IFS of IMF, OECD and CBRT. We also need some parameters for the estimation of the model, and we take them from some research papers and articles. The results show that the Calvo price stickiness parameter for Turkey within the given period is in the range (0.73-0.80), which means the average price stickiness duration is approximately 3-5 months. Therefore, we conclude that the average price changes occur once in every 3-5 months in Turkey for given parameters. This study differs from the general literature of NKPC estimation for Turkey due to the coverage of the data period, the frequency of data and the type of methodology which is applied.