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The Dynamics of Output Gap Hysteresis in Türkiye

Author

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  • Koray YILDIRIM
  • Neşe ALGAN
  • Harun BAL

Abstract

The aim of this study is to identify the dynamics and hysteresis of the output gap. First, the existence of an output gap in the Turkish economy for the period 2005Q4:2021Q3 is determined using the Hodrick-Prescott and Baxter-King methods, and then the structural break procedure, which is widely used in the literature, is applied to detect hysteresis. The presence of a structural break supports the existence of hysteresis in the output gap. In addition, a structural VAR model is estimated with money supply, capacity utilization rate, and capital productivity variables as components of the output gap. While the empirical evidence points to the role of capacity utilization and productivity variables in explaining hysteresis, capacity utilization shocks are relatively stronger determinants of output gap hysteresis. For future studies, the effect of money supply on capacity utilization and productivity, labor productivity, etc., should be monitored. The novelty of the study is the modeling of hysteresis in a structure that includes demand-side and supply-side components. This innovation allows it to act as a guide for policymaking by taking into account the dynamic conditions appropriate to the nature of hysteresis beyond the static situation, such as the detection of hysteresis in the literature.

Suggested Citation

  • Koray YILDIRIM & Neşe ALGAN & Harun BAL, 2025. "The Dynamics of Output Gap Hysteresis in Türkiye," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 10(1), pages 1-26.
    • Handle: RePEc:ahs:journl:v:10:y:2025:i:1:p:1-26
    DOI: https://doi.org/10.30784/epfad.1576481
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    References listed on IDEAS

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    1. Sushant Acharya & Julien Bengui & Keshav Dogra & Shu Lin Wee, 2022. "Slow Recoveries and Unemployment Traps: Monetary Policy in a Time of Hysteresis," The Economic Journal, Royal Economic Society, vol. 132(646), pages 2007-2047.
    2. Benjamin Wong, 2017. "Historical Decompositions for Nonlinear Vector Autoregression Models," CAMA Working Papers 2017-62, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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