Inflation, output growth, and stabilization in Turkey, 1980–2002

Abstract

We study output and inflation in Turkey in the last two decades using a dynamic aggregate supply and aggregate demand model with imperfect capital mobility and structural Vector Autoregressions (VAR). Empirical results show terms of trade, monetary, and balance of payments shocks figure prominently in the inflationary process. Output is mostly driven by terms of trade and supply shocks. The results highlight the importance of a credible disinflation program and structural reforms that restrain discretionary aggregate demand policies.