Investigation of Asymmetric Relationship Between Consumer and Producer Prices in Turkey: Evidence from Hidden Cointegration and Asymmetric Causality Analyses

Abstract

The continuity of price stability is a necessity for the successful management of economic policy, especially monetary policy. Considering that price instability will lead to policy failure, it is extremely important that the general level of prices be accurate and predictable. When the interaction of prices within its own internal mechanism is considered within the scope of the production chain, an evaluation can be made with the distinction of producer and consumer prices. In this regard, the literature has two different views as supply-side and demand-side price transmission. In this study, it is aimed to determine which view is dominant between producer and consumer prices in Turkey. In addition, asymmetric techniques were used while investigating long and short-term relationships based on the idea that there may be an asymmetric structure in price transmission. In the analysis process, the interaction of domestic, agricultural and service producer prices with consumer prices was investigated. According to the results, although supplyside price transmission is valid in the long run, it is seen that the demand-side effect is more significant. In the short run, it can be stated that there is a supply-side price transmission. It is thought that the obtained findings will make significant contributions to the authorities and researchers in the formation of policies based on the inflation targeting regime in terms of the variables used and the analysis technique.