New keynesian price and wage rigidities: The case of Turkey

New Keynesian economics arose in the 1980s in response to theoretical crisis of the 1970s. New Keynesian economics states that monetary shocks cause strong and lasting effects on real activity because of imperfect competition, menu costs, aggregate demand externalities, near rational behavior, stagger price and wage adjustments, time and state dependent price and wage adjustments, coordination failures, consumer markets, inventory theory, input-output tables, implicit contracts, insider-outsider theory and efficiency wage. Fischer (1977) and Taylor (1979a) showed that the presence of long term nominal contract can cause real effect on variables such as output and employment even if expectations are rational.New Keynesian economics focuses importance of nominal rigidities because nominal price and wage rigidities are considered as an important source of the short run non neutrality of money. This study examines the degree of nominal price rigidity in Turkey consumer prices for the period of 1994-2009 and the degree of nominal wage rigidity in Turkey manufacturing sector for the period of 1994-2008. Moreover, this study analyzes whether price and wage changes are staggered or synchronization, whether price and wage changes behaviors are homogenous or heterogeneous and whether price and wage changes behaviors are time or state dependent.According to results, the average price change frequency of consumer prices is 0,747. The average price decrease and increase frequency of consumer prices is 0,121 and 0,627 respectively. The majority of price changes are price increases but price decreases are not common. Price chances behavior of consumer prices are stagger and homogenous. Average wage decrease and increase frequency of public manufacturing sector is 0,314 and 0,666 respectively. Average wage decrease and increase frequency of private manufacturing sector is 0,227 and 0,767 respectively. The majority of wage changes are wage increases but wage decreases are uncommon. Besides, price and wage behavior dependent on both time and state dependent price and wage adjustment rule. Inflation rate is crucial importance for price and wage adjustments. According to results, nominal prices and wages are downward rigidity for Turkish economy.