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

In: Economic and Financial Challenges for Balkan and Eastern European Countries

Author

Listed:
  • Özcan Karahan

    (Bandırma Onyedi Eylül University)

  • Olcay Çolak

    (Uşak University)

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.

Suggested Citation

  • Özcan Karahan & Olcay Çolak, 2020. "Inflation and Economic Growth in Turkey: Evidence from a Nonlinear ARDL Approach," Springer Proceedings in Business and Economics, in: Marietta Janowicz-Lomott & Krzysztof Łyskawa & Persefoni Polychronidou & Anastasios Karasavvoglou (ed.), Economic and Financial Challenges for Balkan and Eastern European Countries, pages 33-45, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-39927-6_3
    DOI: 10.1007/978-3-030-39927-6_3
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    Cited by:

    1. Dimakatso Sekwati & Mbulaheni Albert Dagume, 2023. "Effect of Unemployment and Inflation on Economic Growth in South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 35-45, January.
    2. Alkan, Berkay, 2021. "Growth and Inflation in Turkey," MPRA Paper 111227, University Library of Munich, Germany.
    3. Vasilii Erokhin & Tianming Gao, 2020. "Impacts of COVID-19 on Trade and Economic Aspects of Food Security: Evidence from 45 Developing Countries," IJERPH, MDPI, vol. 17(16), pages 1-28, August.

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