The Development of Inflation in
Between 2000-2010 in Turkey: The
Struggle of Turkey with Inflation
ECON-303
Zehra Burcin Kanik
The Development of Inflation in
Between 2000-2010 in Turkey: The
Struggle of Turkey with Inflation
Prepared for Prof. Dr. Mahir NAKIP
The Chairperson of International Trade Department
The Instructor of ECON-303 Course
Cankaya University
Prepared by Zehra Burcin KANIK
The Department of International Trade
200933021
Cankaya University
January 3, 2014
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ABSTRACT
In this report, I examine the inflation rates and the reasons that cause it to
increase. Also, its historical perspective is progressed and how both developed and
developing countries struggle with inflation. I examined the reasons of high inflation
rates in Turkey, as well. After its historical developments from past to today, the
struggle of Turkey with inflation and what kinds of precautions set by officials and
how these precautions affect the economic situation are explained. Inflation targeting
regime explained clearly to show Turkey’s performs in history. To explain this, some
articles, researches, governmental official websites, were used. The report is
supported by some figures, statistics and graphs, as well.
Key Words: Inflation Rates, Increasing Price, Price Levels, Struggle with
Inflation, Inflation Targeting Regime
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ACKNOWLEDGEMENT
I would like to offer my special thanks to my instructor of ECON-303 course,
Prof. Dr. Mahir NAKIP because of his patience and sharing his experiences with us.
Also, thanks to researchers that share their works with me.
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TABLE OF CONTENTS
Abstract………………………………………………………………………………..3
Acknowledgement……………………………………………………………………..4
Table of Content…………………………………………………………………….....5
List of Figures…………………………………………………………………………6
1.Introduction………………………………………………………………………….7
1.1.Background Information About Inflation…………………………………7
1.2.Scopes and Organization…………………….…………………………….7
1.3.Sources and Methods…………………………………………….………..8
1.3.Summary…………………………………………………………………..8
2.Inflation And Turkey………………………………………………………………..8
2.1. The Historical Development of inflation…………………………………9
2.2. The Struggle With Inflation In Between 2000-2010…………………….10
3.Conclusion………………………………………………………………………….11
6.References………………………………………………………………………….12
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LIST OF FIGURES AND TABLES
Figure 1- The Inflation In The World………………………………………………..7
Figure 2- The Development of Inflation Rates……………………………...………..9
Figure 3- Economic Implications of Turkey in 1990s……...……………………….10
Figure 4- Inflations Targets in Between 2002-2005…………………………………11
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I.
INTRODUCTION
Inflation is one of the most important economic problems that affect countries for
a long time. Because of inflation, countries, especially developed ones, try lots of
ways to struggle with inflation and keep it in a stabile level.
1.1.Background Information About Inflation
In reality, inflation is sustained rise in the average level of prices.
(MELVIN&BOYES, 2011, p.146) It means that inflation rates are increasing for a
long time. Bulge and coining too much money show what inflation is, as well. The
inflation rates are measured by percentages. In some countries, the price levels rise
faster than other countries and in this situation it can be said that there is high rate
inflation in that country. Moreover, if there is high inflation rate in one country, it
shows the changes of absolute and relative prices. Higher price levels reduce the
purchasing power of the money. Mostly, economists classify inflation in two sides:
“Demand-Pull Inflation” and “Cost-Push Inflation”. This classification is constituted
by their sources of inflationary pressure. (DINLER, 2010, 454)
Figure 1: The Inflation In The World
Source: The WorldBank, 2012
In 1970, because of the declining of Bretton Woods System, across the globe,
high inflation was seen and it directed the countries to find the ways that help to
provide price stability. Especially in developed countries, inflation is the main
problem of economy and they apply consistent politics to protect themselves from
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inflation’s negative effects. However, developing countries cannot keep away from
high inflation rates. Thus, developing countries are in search of finding the ways to
eliminate the inflation risks. Turkey is one of them and its struggle with inflation is
still continue.
You may have noticed that all the empirical evidence on the relationship of money
growth and inflation discussed so far looks only at cases in which the price level is
continually rising at a rapid rate and so inflation is persistent. (MISHKIN, 2010,
p.619)
1.2.Scopes and Organization
In the body part of the report, the interaction between Turkey and inflation
will take place. The historical developments of inflation in Turkey will be explained,
as well. In these parts, the precautions that are taken by Turkey and how Turkey try to
be keep away from inflation will be showed in every aspects in between 2000-2010.
At the end, all report will be summarized shortly and then, alternative offers will be
presented to help researchers, academicians and students.
1.3.Sources and Methods
While the report constituting, some evaluations, comparisons, analyze and
statistics will be used to prove the report. Also academic research papers, some books
and official websites, which include information about the struggle of Turkey with
inflation in between 2000-2010, will help during the research.
1.4.Summary
At the end, the evaluations all the aspects of inflation will be summarized shortly.
Also, researchers will be informed about the struggle of Turkey with inflation in
between 2000-2010. After giving all the sides of struggle tools it can be said that
people who will read this report can be understand the best tool to be protected from
inflation.
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II.
INFLATION AND TURKEY
In global world, Turkey has a special place with respect to its inflation status.
Turkey is the only country that living high rate inflation over 30 years.
(www.unctad.org-12.04.2007) In fact, this is a kind of genetic structure for Turkey.
The rates of inflation, inflation terms and durations are some indicators that convey
Turkey to special place from among other countries. Even though its failure to put a
fight with inflation, Turkey have came through to live with inflation in inflation’s
historical development. However, this situation causes income distribution problems,
increases foreign trade deficit, scarcity in resource distribution and important raises in
real and nominal prices. Although Turkey is living with inflation for a long time,
there was not seen hyperinflation. (UYSAL, 2007, p.22)
2.1. The Historical Development of Inflation
Turkey has come face to face with inflation in 1939 with respect to the Great
Depression, which affect whole the world. In Turkey, there are 3 important inflation
terms are seen from past to today: 1954-1959, 1977-1980 and from 1984 to today.
Figure 1: The Development of Inflation Rates In Turkey:
Source: TUIK
In 1950, Turkey moved to more liberalized economy. Although there was
fixed exchange rate system, import became more liberalized, as well. Because of
climate problems, in those years, agriculture is affected negatively. Also, foreign
currency reserves were wasted and it was not surprised that inflation will be rise.
Central Bank try to interfere but it could not to stop the rising inflation. After
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devaluation of the currency about %220, the market became clarified for a short time
but unfortunately, in 1970; there was once more devaluation because of increasing
prices.
From 1973 to 1980, Turkey was in an inflationist term, which was
continuously rising. The prices were increasing 100% and rising petroleum prices
were effective to these rises. Until 1980, this situation continued and “January 28
Decisions” were set to prevent this non-stabilized economy.
In 1990s, the economy of Turkey was still in chaos. The growing rate was
low, the sources were scarce, and the decisions and the actions that are performed by
Central Bank to stabilize economy were wrong. Because of the risks and expected
devaluation, foreign capital outflows were seen. This chaotic environment continued
to economic crisis in November 2000.
Figure 2: Economic Implications of Turkey in 1990s:
2.2 The Struggle With Inflation in Between 2000-2010
The past researches showed that in Turkey, there is “Demand-Pull Inflation”
because inflation is resulted from money supply rises and public sector deficits. To
prevent the negative effects of inflation, in banking sector, some regulations are set
and a program, which directed to decrease inflation. According to this program, the
main tool that helps to decrease inflation was foreign currency. The Central Bank
would not allow foreign currency fluctuations that rise above the inflation target.
Also, the amount of Turkish Liras should depend on foreign currency amount.
However, the crises that respect to foreign currency scarcity and liquidity problem,
this program were stopped and “Floating Exchange Rate System” was accepted.
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With the help of a new system that was performed with IMF, the Central Bank
started to try keeping stabilized the prices and to use “Inflation Targeting System”.
Even though all the regulations, targeting, programs, Turkey could not pull away from
the crisis and tried to “Implicit Inflation Targeting” in 2006. Implicit Inflation
Targeting was a step that helps to move “Open Economy Inflation Targeting”.
(AYDOGAN, 2004, p.98)
In between 2002-2005, the inflation rates were seen under annual targets and
after a long time in 2005, the inflation rate was one digit. In 2005, the inflation rate
was the lowest rate of the last 35 years. These implications showed that, Turkey
started to be successful to struggle with inflation. Also, the Central Bank’s credibility
started to be increase.
Figure 3: Inflation Targets in Between 2002-2005:
III.CONCLUSION
In a nutshell, Turkey has lived with inflation for over 30 years. After wrong
decisions that set by governments cause economic crises and this situation affects the
inflation rates in a country. Decreasing growth rate and increasing unemployment
resulted from rising inflation rates.
From past to today, to decrease increase and to develop the economy, so many
times, some regulations and agreements have set with IMF. With the help of
interdependence of the Central Bank in Turkey, more successful politics started to be
performed. Although the global economic changes that affect whole the world,
Turkey become successful to overcome with inflation, with the help of inflation
targeting system.
As a result, the inflation targeting system is beneficial for Turkey to keep
away from high inflation rates. After a prolonged time, Turkey started to learn how to
encourage with inflation and increase its growth rate. Maybe, it is a step that helps
Turkey to become one of the developed countries from being developing country, as
well. (ERMISOGLU, 2011, p. 88)
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IV.REFERENCES
1. AYDOGAN, E. (2004) 1980’den Gunumuze Turkiye’de Enflasyon Seruveni.
Yonetim ve Ekonomi. Manisa: Celal Byar Universitesi Iktisadi ve Idari
Bilimler Fakultesi.
2. DINLER, Z. (2010) Iktisada Giris. 16th Edition. Bursa: Ekin Kitabevi.
3. ERMISOGLU, E. (2011) Enflasyon Hedeflemesi Rejiminin Turkiye’deki
Basarisinin Degerlendirilmesi. Ankara: Turkiye Cumhuriyet Merkez Bankasi,
Piyasalar Genel Mudurlugu.
4. MELVIN&BOYES (2011) Principles of Economics. 8th Edition. SouthWestern:Engaged Learning
5. MISHKIN (2010) The Economics of Money, Banking and Financial
Markets.9th Edition. The United States: Pearson.
6. UYSAL, Y. (2007) Turkiye’de Enflasyon: Sektorel Kaynaklari ve Ic Ticaret
Hadleri. Finans, Politik&Ekonomik Yorumlar.
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