The purpose of this study is to contribute to the
literature by studying the effects of sudden changes both on
crude oil import price and domestic gasoline price on inflation
for Turkey, an emerging country. Since an inflation
targeting regime is being carried out by the Central Bank of
Turkey, determination of such effects is becoming more
important. Therefore empirical evidence in this paper will
serve as guidance for those countries, which have an inflation
targeting regime. Analyses have been done in the
period of October 2005–December 2012 by Markovswitching
vector autoregressive (MS-VAR) models which
are successful in capturing the nonlinear properties of
variables. Using MS-VAR analysis, it is found that there
are 2 regimes in the analysis period. Furthermore, regime
changes can be dated and the turning points of economic
cycles can be determined. In addition, it is found that the
effect of the changes in crude oil and domestic gasoline
prices on consumer prices and core inflation is not the same
under different regimes. Moreover, the sudden increase in
gasoline price is more important for consumer price inflation
than crude oil price shocks. Another finding is the
presence of a pass-through effect from oil price and gasoline
price to core inflation.