Effects of Inflation Uncertainty on Economic Policies: Inflation-Targeting Regime

Mehmet Kenan Terzioglu

A chapter in Financial Management from an Emerging Market Perspective from IntechOpen

Abstract: Inflation uncertainty maintains its importance in emerging economies as well as in others. Increases in the level of inflation uncertainty constitute an important risk factor by affecting macroeconomic variables in the markets that are sensitive to price changes. The stabilization programs implemented in Turkey during 1980-2003 could not reduce the sensitivity of economic structure to inflationary shocks. Between 2003 and 2015, changes occurred, switching from high inflation to the single-digit inflation rates, in Turkey with transition to the inflation-targeting regime. Within the scope of this study, the effect of inflation uncertainty on inflation, economic growth and selected monetary-fiscal policy variables was examined using multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) models. The dynamic conditional covariance model is designed to reflect the strong time-dependent correlation structure. While the inflation-targeting regime studies in developing countries focus on either the adoption or nonadoption of such a regime and its feasibility, this study evaluates the success of the regime in Turkey as an emerging economy.

Keywords: inflation uncertainty; inflation targeting; monetary policy; fiscal policy; MGARCH models (search for similar items in EconPapers)
JEL-codes: C88 E47 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ito:pchaps:129956

DOI: 10.5772/intechopen.71625

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