Determinants of Inflation in a Micro Economy

This thesis aims to identify the determinants of inflation in Northern Cyprus. The thesis uses monthly data from 2015-2021. Unit root test results indicate that there is mixed-order integration for variables. The bounds test under the ARDL approach verified that the variables have a long-run association. The findings indicate that inflation rates in Turkey, minimum wage, electricity prices, exchange rates and government spending are the factors that have a significant impact on the long-term inflation rates in Northern Cyprus. Specifically, a 10 percentage point increase in inflation rates in Turkey, minimum wage, electricity prices, exchange rates, and government spending will result in a 9.4, 0.7, 0.99, 1.3, and -0.29 percentage point rise in inflation rates in Northern Cyprus, respectively. Therefore the main finding of this study is that the T rkiye's inflation rate largely determines and causes inflation in Northern Cyprus.