Distributional and Welfare Implications of the Recent Disinflation in Turkey

By Enes Sunel

SETA Policy Brief, No 49, October 2010

Abstract

Turkey is among emerging economies that have experienced sharp declines (in the form of structural changes) in the level of inflation rate since the mid-1990s. Motivated by the availability of better data on financial system characteristics and distributional measures, this brief explores the distributional and welfare impacts of the recent reduction in inflation on the Turkish economy. In particular, the extent of financial dollarization and the inequality in the distribution of demand and term deposits are documented. This brief points out that apart from the classical adverse effects of inflation such as price distortions and wealth eroding; redistributive effects of inflation might be created by the particular way that the fiscal policy responds to the monetary policy .