Inflation Inertia in Turkey: An Analysis of Dynamic Effects Using the Local Projection Approach
DOI:
https://doi.org/10.63556/tisej.2026.1880Keywords:
Inflation, Inertia, Local Pro, Local Projection MethodAbstract
In modern macroeconomic literature, inflation inertia plays a significant role among the causes of inflation, alongside traditional demand- and cost-driven dynamics. Inflation inertia, defined as the tendency of the inflation rate to be influenced by past values and the persistence of price shocks over time, necessitates the inclusion of expectations in economic management. Determining the degree of inflation inertia, particularly in economies that have experienced high and volatile inflation, plays a significant role in assessing the effectiveness of monetary policy and ensuring price stability. This study analyzes the existence of inflation inertia in the Turkish economy and the dynamic effects of inflation shocks using quarterly data from the 2010–2025 period. As part of the analysis, the stationarity structures of the time series were examined using the Augmented Dickey–Fuller (ADF), Zivot–Andrews, and Lee–Strazicich unit root tests. The effects of inflation shocks over time were estimated using impulse response functions based on the Local Projection method developed by Jordà (2005). The findings indicate that inflation shocks in Turkey do not subside quickly and that there is significant inertia in inflation dynamics. It has also been found that the effects of the interest rate, the real exchange rate, and government spending on inflation emerge in different ways over time. The findings indicate that managing inflation expectations is of critical importance for price stability. In this context, it is recommended that the central bank develop policies that will ensure price stability by managing not only the other dynamics that drive inflation but also the expectations of decision-makers.
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