Conflicting Interests and Structural Inflation: TUrkey, 1980-1990

A . Erinc Yeldan


The paper analyses the structural causes of the recent Turkish
inflationary episode. It is argued that monetary policies based on
credit tightening alone are not likely to yield the desired target of
price stabilisation. Instead. it is hypothesised that the underlying
sources of price inflation are affected by income inequality and
conflicting claims on national output; and that excessive credit
expansion serves mainly to accommodate the inertial inflation thereby
originated in the real sector. Given this hypothesis. the paper employs
a computable general equilibrium model to investigate four distinct
sources of structural inflation for the Turkish economy: (i) the
profit/rent inflation based on monopolistic mark-Ups over prime costs;
(ii) imported inflation due to the import-dependent structure of the
domestic industry; (iii) cost-push and demand inflation due to urban
wage claims; and (iv) inflation that results from the fiscal pressures
of the government's budget deficits. The general equilibrium model is in
the Keynesian tradition in determining the production level by aggregate
demand constraints. Furthermore. it accommodates oligopolistic mark-up
rules and working capital expenses for price determination. and nominal
wage fixity to determine the level of employment. The general
equilibrium analysis of the macro economy suggests that. over the
analysed period. conflicting claims of various social classes on
national output and conflicting rates of intersectoral accumulation
warranted by competing producer groups have become important sources of
disequilibria in the domestic economy; and that the distributional
conflict among socio-economic classes had a direct impact on the
formation of price movements.

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