ABSTRACT

As a consequence of increasing global trade, globalisation has become an important factor effecting macro variables. Many economist claime that with globalisation, the importance of global factors have increased replacing local factors. There are studies that do not approve the effect of globalisation on inflation. This study investigates the effect of increased globalisation on domestic inflation for Turkey between 1991:1-2008:2. We look whether inflation is affected more from domestic output gap or global output gap, and could not find strong evidence that, in line with globalisation hypothesis, domestic inflation is more affected from global output gap.