Inflation Dynamics and its Sources in the Ottoman Empire: 1586–1913

Abstract

This study examines the dynamics and determinants of inflation in the Ottoman Empire during the period. There might be two main reasons for inflation: fiscal expansion and monetary expansion where the monetary expansion could be generated through the debasement of local currency (Akçe). We used a set of political and structural variables in order to explain the change in the inflation dynamics. In particular, we considered the war years, periods of Ottoman history which show different characteristics (the slow down period, the recession period and the break up period) and the period of constitutional monarchy. Moreover, we tested if the inflation process was the same for each sultan and all of the sultan behaved differently from the rest of their reign during their first year. Accordingly, the empirical evidence reported here suggests that war accelerated inflation as expected and fiscal expansion rather than the debasement of the Akçe was a main reason for inflation. Moreover, the slow down, the recession and the break up periods affected inflation positively; both fiscal expansion and the debasement of the Akçe were seen in these three periods as sources of inflation. In addition, each sultan had different inflationary policies during his period. However, each sultan accelerated inflation in the first year of his reign by the debasement of the Akçe or by fiscal expansion. Last, the constitutional monarch period had a significant positive effect on inflation; however, fiscal expansion rather than the debasement of the Akçe was the source of inflation in this period.