Price-Money Relationship after Inflation Targeting: Cointegration Test with Structural Breaks for Turkey and Brazil

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Dumrul C., Dumrul Y.

International Journal of Economics and Financial Issues, vol.5, no.3, pp.701-708, 2015 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 5 Issue: 3
  • Publication Date: 2015
  • Journal Name: International Journal of Economics and Financial Issues
  • Journal Indexes: IBZ Online, ABI/INFORM, EconLit, Directory of Open Access Journals
  • Page Numbers: pp.701-708
  • Erciyes University Affiliated: Yes

Abstract

The infl ation targeting (IT) strategy may create structural changes in macroeconomic variables. This study analyzes the effect of the IT strategy on the price-money supply relationship in Turkey and Brazil by Kejriwal–Perron (K–P) cointegration analysis with structural breaks. The analysis aims to determine whether the IT strategy leads to regime shifts in the price index-money supply relationship in Turkey and Brazil. The K–P tests reveal a structural break in the price-money supply relationship as a result of the IT strategy. In both countries, the implementation of this strategy leads to a decrease in the regime coeffi cients for Turkey while it creates an increase for Brazil. When Turkey and Brazil are compared in terms of money-price relationship after the IT strategy, the study reveals that it has weakened more in Brazil.