THE RELATIONSHIP BETWEEN OUTPUT GROWTH AND INFLATION: EVIDENCE FROM TURKEY

Tolga Omay (), Nilay aluftekin () and Ece Ceylan Karadagli ()

Journal of Applied Economic Sciences, 2010, vol. 5, issue 1(11)_Spring2010, pages 55-63

Abstract: In this study, a bi-variate Generalized Autoregressive Conditional Heteroscedasticty model is used in order to investigate the Granger causality relationships between output growth, inflation rate and their uncertainties. Our test results show that the existence of Granger-causality is observed from nominal uncertainty to inflation, from nominal uncertainty to real uncertainty, from output growth to real uncertainty, from output growth to nominal uncertainty and from inflation to nominal uncertainty. These findings prove that theoretical predictions of Cuikerman and Meltzer (1986), Okun (1971) and Friedman (1977) are valid for the period 1986, 6 - 2007, 1 for Turkey. On the other hand, ‘Short-run Phillips Curve’ and ‘Taylor Effect’ have proven empirically to be invalid for Turkey for this sample period. Moreover, we deduce that Turkish inflation is affected by the output growth through the nominal uncertainty channel.

Keywords: inflation; output growth; uncertainty; Granger-causality; bi-variate GARCH (search for similar items in EconPapers)
JEL-codes: C22 E0 (search for similar items in EconPapers)
Date: 2010
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Working Paper: The relationship between output growth and inflation: Evidence from Turkey (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:ush:jaessh:v:5:y:2010:i:5(1)_spring2010:p:93

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