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Abstract:
Reducing inflation has become a key policy issue in Turkey. We study short-term dynamics of Turkish inflation to contribute to a better understanding of this important problem. We provide a broad-brushed review of issues related to high and chronic inflation, offer some observations on the Turkish inflation, and discuss the implications of all these on disinflation. It is hard to contest that inflation is a fiscal problem in Turkey. Nevertheless, there are some additional issues that are worth thinking about, namely that, inflation seems largely inertial, has some characteristics typical of high and chronic inflation processes elsewhere, and there are reasons to believe that the economy might have been stuck in a high inflation equilibrium largely resulting from a host of coordination problems rather than economic fundamentals, per se. One implication of all these for a disinflation program is that overall costs of disinflation might be less severe than one might think.
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