Inflation differentials across regions in Turkey

Abstract

The aim of the present article is to analyze the convergence of regional inflation rates in Turkey from 2004 to 2015 by adopting sigma convergence and distribution dynamics approaches. The outcomes of our research can be summarized in two groups. First, inflation disparities tend to decline over time, especially during the post-crisis period after 2010. Hence, the aggregate price stabilization and disinflation process in Turkey is coupled with convergence in inflation rates across regions. Second, in addition to the findings in the literature, we find that regions change their relative inflation rate positions quite often. This indicates that regional inflation behavior is random and non-structural, as the relatively high and low inflationary places tend to change their quintiles frequently. The results imply several policy suggestions. First, achieving inflation convergence is a harder task than initially understood, as it seems to show random behavior. Second, trade integration can be an option to foster regional price convergence.