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Inflation and Inflation Uncertainty: Evidence from Turkey, 1923–2012

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  • dogru, bulent

Abstract

In this study, relationship between inflation and inflation uncertainty is analyzed using Granger causality tests with annual inflation series covering the time period 1923 to 2012 for Turkish Economy. Inflation uncertainty is measured by Exponential Generalized Autoregressive Conditional Heteroskedastic model. Econometric findings suggest that although in long run the Friedman's hypothesis that high inflation increases inflation uncertainty is strongly supported, in short run the Holland hypothesis proposing that the increase in the inflation uncertainty decreases inflation is also supported for Turkish Economy. We also make analysis for subsample periods selected due to the major policy changes in Turkish economic history. The causality between inflation and inflation uncertainty in these subsample periods is mixed and depends on time period analyzed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51232.

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Date of creation: 14 Jun 2013
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Handle: RePEc:pra:mprapa:51232

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Keywords: Inflation Uncertainty; Conditional Variance; Granger Causality; Exponential Generalized Autoregressive Conditional Heteroskedastic Model;

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  1. John Thornton, 2007. "The Relationship between Inflation and Inflation Uncertainty in Emerging Market Economies," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 858–870, April.
  2. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 451-72, June.
  3. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 54(5), pages 1099-1128, September.
  4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
  5. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1361-1401, November.
  6. TF. Nas & MJ. Perry, 2000. "Inflation, inflation uncertainty, and monetary policy in Turkey: 1960-1998," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 170-180, 04.
  7. Holland, A Steven, 1995. "Inflation and Uncertainty: Tests for Temporal Ordering," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(3), pages 827-37, August.
  8. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 29(3), pages 371-388, June.
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