Relationship between Economic Growth, Unemployment, Inflation and Current Account Balance: Theory and Case of Turkey

Tugba Dayioglu and Yilmaz Aydin

A chapter in Linear and Non-Linear Financial Econometrics -Theory and Practice from IntechOpen

Abstract: The relations between economic growth, unemployment, inflation and current account balance are analyzed theoretically and different comments on theoretical approaches are discussed in the study. Accordingly, while the unemployment-inflation relationship is considered with Phillips analysis and the scope of the growth-unemployment with Okun Law, the interaction between the current account balance and growth is shown with the equality of national income accounting. After the theoretical approaches described in detail with shared data and interpreted for Turkey. This study also examines the relation between the unemployment, inflation, economic growth, current account deficit with symmetric and asymmetric reserved causality tests were examined for the 2000Q1 - 2020Q4 period. The asymmetric hidden causality relationships between the series were researched with Hatemi-J (2012) method based on Toda-Yamamoto (1995) test in this study. When the relationship between the growth rate and the unemployment rate are examined between these years in Turkey it is observed that there is an inverse relationship between growth and unemployment, especially during crisis periods. After that to find this relationship we used symmetric and asymmetric causality. As a result of the estimates growth also has a one-way symmetrical causality relationship from negative shocks to negative inflation shocks. When the relationship between them is viewed only with one-way or two-way causality, there may be no relationship so the causality must be checked asymmetrically even to catch the assumption of the Okun's law correctly for Turkey.

Keywords: Phillips curve; Oko? law; growth; asymmetric and symmetric causality (search for similar items in EconPapers)
JEL-codes: C01 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ito:pchaps:217290

DOI: 10.5772/intechopen.93833

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