Ç. BOZ 631
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policies on real variables discredited the policy ineffec-
tiveness proposition of New Classical paradigm and New
Keynesian models based on nominal rigidities have been
widely acknowledged in 1990s. New Keynesian Phillips
Curve which presents a model of inflation dynamics,
postulates that current inflation is determined by ex-
pected inflation (forward-looking behavior) and the real
marginal costs. By the contributions of Gali and Getrler
[6] a hybrid NKPC which includes backward component
is suggested.
Despite it has a commonly accepted theoretical back-
ground, the evidence from the studies on the relevancy of
the NKPC is mixed. While some studies provide the evi-
dence supporting the NKPC, there are also studies which
have evidence against it.
In this paper, the Quantile Regression Method (QRM)
is used to estimate the New Keynesian Phillips Curve
(NKPC) for Turkey. By this method, it is aimed that to
identify differences in response of the inflation to
changes in explanatory variables at various points of in-
flation. For the period of 2002q1-2012q3, we find that
the backward-looking component appears to be the sig-
nificant variable at all inflation quantiles and it is espe-
cially influential at low levels. In other words, Phillips
curve is purely backward-looking at these quantiles. One
explanation for this might be the imperfect credibility of
the monetary authority. Impact of the forward-looking
inflation terms becomes more significant when the infla-
tion increases and it dominates the backward-looking
term at high inflation quantiles. In addition, the signifi-
cance of output gap (marginal cost) and exchange rates
increases for high inflation. These findings support the
hybrid New Keynesian Phillips curve for Turkish econ-
omy over 2002-2012.
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