Regional inflation spillovers in Turkey

Abstract

This paper examines the inflation spillovers across regions of Turkey by employing the Diebold and Yilmaz (Int J Forecast, 28:57–66, 2012) spillover index using the monthly aggregate and 12 subgroups of consumer prices over the period 2005–2021. The results mainly suggest a high degree of inflation spillovers regardless of the type of consumer prices. However, the direction and magnitude of inflation spillovers differ among regions. Istanbul, the most significant metropolitan province, and western regions are the main transmitter of inflation. Conversely, Turkey’s eastern and southeastern regions receive more inflation shocks than they contribute, reflecting the level of regional socioeconomic development disparities that matter for price variability. Thus, it makes sense to monitor the westerns and, precisely, Istanbul's inflation to predict future prices in the country. We suggest region-based price management policies to reduce the heterogeneity of inflation spillovers between regions, as some regions are more prone to inflation shocks than others.