Comparison of alternative Philips curve approaches in the inflation targeting regime in Turkey

In this study, the effect of expectations and output gap on the inflation rate in Turkey was investigated. To carry out the research, survey-based expectations data, consumer price index (CPI) and gross domestic product (GDP) series were taken from the Elect-ronic Data Delivery System. The output gap is obtained by applying the Hodrick-Prescott filter to the gross domestic product in chain linked volume. Wald test was con-ducted to investigate whether the output gap and expectation series affect the consumer price index in the form of new keynesian, new classical or hybrid new keynesian. In addition, non-linear ARDL (Autoregressive Distributed Lag Bound Test) model was created according to the findings obtained as a result of the wald test and the power of the effect was measured. As a result of the Wald test, it was concluded that the hybrid new keynesian phillips curve model better explains the current situation for the Turkish economy. Accordingly, a nonlinear ARDL model was established with past and current values of expectations, past and current values of inflation, and output gap variables. As a result, it was found that all variables except the positive shocks of the output gap are significant in the long run. This shows that the CPI series is cointegrated with both posi-tive and negative values of the expectation series in the long run. The positive effects of the CPI and the output gap are not cointegrated. But it can be said that it is cointegrated with negative values. When the short-term relationships are examined, it is seen that all variables are significant. At the same time, the error correction coefficient is negative. This means that deviations from the balance in the system will tend to balance again. For the causality relationship, the Hatemi J-Roca causality test was applied. As a result of this test, causality was determined from the positive components of the inflation to the positive components of the output gap, and from the negative and positive components of the output gap to the negative components of the inflation. Keywords: Phillips Curve, Performance Comparison, Wald Test