Abstract

Using quarterly data for Turkey spanning 1995 Q1 – 2024 Q4, we estimate closed- and open-economy hybrid New-Keynesian Phillips Curves that allow for time-varying and asymmetric slopes. Controlling for three structural breaks—the **2001 banking crisis, the 2018 currency turmoil, and the 2020-21 pandemic—**a 1-percentage-point positive output-gap shock raises CPI inflation by 0.10–0.14 pp in the short run, while the long-run pass-through from expected to current inflation ranges from −0.02 pp to −0.12 pp. Error-correction coefficients of −0.26 to −0.50 imply that disequilibria vanish within two to four quarters. Robustness checks using state-space time-varying-parameter estimators confirm the post-2021 steepening of the curve. Recent evidence that global forces have flattened—but not eliminated—the Phillips relationship (Kabundi, Poon & Wu 2023) and that Turkey’s post-pandemic inflation is increasingly demand-driven (Akarsu & Aktuğ 2025) supports our results, whereas earlier closed-economy estimates understate the slope by ignoring import-price spill-overs. Our open-economy specification therefore produces a steeper, yet still forward-looking, curve and explains 82 % of in-sample inflation variance.
Policy implications. (i) Credible expectation-anchoring could halve the persistence of inflation shocks. (ii) Output-gap management must be pre-emptive, because positive gaps accelerate prices more than negative gaps decelerate them. Consistent communication, demand-smoothing tools, and measures that curb import-price pass-through together give the Central Bank of Türkiye the greatest leverage in reaching its 2025–26 inflation target.