Inflation and Economic Growth in Turkey: Evidence from a Nonlinear ARDL Approach

Özcan Karahan () and Olcay Çolak ()
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Özcan Karahan: Bandırma Onyedi Eylül University
Olcay Çolak: Uşak University

A chapter in Economic and Financial Challenges for Balkan and Eastern European Countries, 2020, pp 33-45 from Springer

Abstract: Abstract The relationship between inflation and economic growth is one of the most debated issues within the different schools of economics. Keynesian economists claim that there is a positive relationship between inflation and economic growth while Classical economists assert that inflation negatively affects economic growth. In order to extend the existing evidence concerning the inflation–growth nexus, this study aims to examine the Turkish case. We use the newly developed Nonlinear Autoregressive Distributed Lag (NARDL) model for the quarterly data set between 2003 and 2017. Estimation results indicated the existence of a nonlinear negative relationship between inflation and economic growth in the long-run. Thus, empirical findings support the Classical approach arguing an adverse relationship between inflation and economic growth. Accordingly, price stability should be considered as the basic prerequisite for assuring long-term economic growth in Turkey. In order to promote long-term economic growth, the Turkish economy needs anti-inflationary policies rather than making a sacrifice by enduring a high-level inflation as pointed out by the Keynesian approach. Hence, it can be also concluded that the Central Bank of the Republic of Turkey (CBRT) has still a significant justification in order to maintain the Inflation Targeting (IT) Monetary Policy implemented since 2001.

Keywords: Inflation; Economic growth; Nonlinear ARDL (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-39927-6_3

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DOI: 10.1007/978-3-030-39927-6_3

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