Is there the time‐inconsistency problem in Turkey?
Abstract
Purpose
The purpose of this paper is to analyze the time‐inconsistency problem between inflation and unemployment rate series for Turkey.
Design/methodology/approach
The validity of the Barro‐Gordon model's implications is tested by using state‐space form and a Kalman filter. In order to investigate the long‐run effects of the time‐inconsistency problem, unit root and co‐integration tests are applied. First, a Hodrick‐Prescott filter is used to test the short‐run effects. Then the modified Barro‐Gordon model's constraint is applied to the detrended inflation and unemployment rate.
Findings
The results of this study suggest that both inflation and unemployment series are not stationary and they include the unit root, but that first differences of the two series are stationary. The co‐integration test results also do not support the Barro‐Gordon model's implications for the long‐run behavior of inflation and unemployment: the two variables are not cointegrated.
Originality/value
The results of this study suggest that the time‐inconsistency problem for Turkey can be valid in the short‐run, but sufficient proof cannot be found to support the Barro‐ Gordon model's implications for the long‐run.
Keywords
Citation
Kanalici Akay, H. and Nargelecekenler, M. (2007), "Is there the time‐inconsistency problem in Turkey?", Journal of Economic Studies, Vol. 34 No. 5, pp. 389-400. https://doi.org/10.1108/01443580710823202
Publisher
:Emerald Group Publishing Limited
Copyright © 2007, Emerald Group Publishing Limited