Abstract
Inflation dynamics in Turkey have been notoriously volatile for several decades. Starting in the 1970 decade, inflation rates frequently reached three digit levels, remained high until 2000 and decreased to relatively low levels after 2001 as a consequence of a series of reforms. Considering the volatile and alternating behavior of inflation dynamics in Turkey, the purpose of this work is to utilize different specifications, including time-varying trend and stochastic volatility setups, in order to test, to which extent stochastic volatility is relevant for modeling inflation in Turkey for the period 1955-2020. Our results suggest that inflation volatility is indeed time-varying and that the period 1980-2000 was characterized by increasing trend inflation and inflation volatility. Also, we show that specifications with stochastic volatility are preferred over those with constant volatility.
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