Sectoral analysis of price setting behaviour in turkish manufacturing industries

High inflation is one of the biggest problems in developing countries since it causes economic instability by deteriorating economic growth, welfare and income distribution. Although the properties of aggregate inflation is of ultimate interest for policy-decisions, understanding the main features and determinants of the firms? price setting behaviour is also crucial in discovering the determinants of inflation and producing more realistic inflation forecasts. In this study, we investigate inflation persistence and price-setting behaviour in Turkey by using three approaches. Firstly, we analyse time series data on producer prices at the disaggregate level. This type of analysis is more standard in literature, but of utmost importance since these data is used in designing and implementing monetary policy. Since the firms? price setting behaviour is crucial in designing and implementing monetary policy, secondly we analyse results of the price-setting survey that was carried out by the Central Bank of the Republic of Turkey. The advantage of using survey analysis is that we can analyse the pricing behaviour of firms from many respects, which cannot be carried out solely by analysing price indices. Besides, survey analysis allows to validate the results gathered from time-series analysis and to test for various price stickiness theories. Finally, we investigate the pricing behaviour of Turkish firms over time on the basis of firm-level qualitative micro data obtained from the Business Tendency Survey. By using the firm-level data, we derive a set of stylised facts about the direction and frequency of price changes, sectoral differences and investigate the impact of various shocks on price adjustments and the synchronization of price changes across firms. In this study, the results from these three approaches improve our knowledge on price-setting behaviour and inflation dynamics in Turkey and constitute unique resource for micro-founded pricing models.