ANALYSIS OF PRICE RIGITIY IN TURKEY BY FAVAR

New Keynesian economic theory is built on the assumption that prices and wages are sticky. Despite the aggregate data supporting the sticky prices assumption, micro data indicate that disagregated prices change much faster than conventionally assumed. In order to explain the disgreement between macro and micro data, we developed a FAVAR model (Bernanke, Boivin ve Eliasz, 2005) and computed the common and sector specific components for Turkish economy from 2005:01 to 2014:12. Our analysis revealed that share of common components in price setting process in Turkey is inconsistent with high degree of price rigidity