Forecasting Türkiye Local Inflation With Global Factors

Oguzhan Cepni*, Abdullah Kazdal, Muhammed Enes Olgun, Muhammed Hasan Yılmaz

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper investigates whether inflation forecasting in emerging economies can be improved with the inclusion of a global inflation component. Focusing on the headline inflation rate of Türkiye, we implement a forecasting exercise using a large dataset describing domestic macroeconomic as well as global inflation dynamics. Our factor-augmented predictive regression results show that incorporating global inflation factors derived from other emerging markets' inflation rates enhances forecasting accuracy of the local headline inflation rate. The results are robust to using alternative dimension-reduction methods, including the elastic net technique. Our findings contribute to the current methodological toolkit available to policymakers for predicting inflation in an emerging market context.
Original languageEnglish
JournalBulletin of Economic Research
Number of pages12
ISSN0307-3378
DOIs
Publication statusPublished - 21 Nov 2024

Bibliographical note

Epub ahead of print. Published online: 21 November 2024.

Keywords

  • Common factors
  • Forecasting
  • Global inflation
  • Sensitivity analysis
  • Variable selection

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