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Velocity Effect On Inflationary Growth of Turkey: Evidence From Co-integration Analysis and Granger's Causality Test

  • Ozturk, Ilhan

The Turkish economy has experienced high and persistent inflation rates in the last two decades. This inflation has persisted despite many unsuccessful stabilization policies, which have caused volatility in macro-economic indicators. The main aim of this paper is to analyze the impact of velocity on inflationary trend in Turkey over the period between 1996 and 2001. We assumed that there is a direct relationship between the two factors. However, velocity is not the major cause of inflation. The integration and co-integration tests have been adopted on monthly time series data to test the validity of the model by adding some control variables. Results show that velocity has a weak and negative effect on the inflationary growth of Turkey during this period. The effects of other control variables on inflation growth have also been tested. Some aspects of this linear relationship have been obtained by Granger’s Causality Test.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 259.

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Date of creation: 2002
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Publication status: Published in The Indian Economic Journal 1.50(2002): pp. 48-54
Handle: RePEc:pra:mprapa:259
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  1. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
  2. Metin, Kivilcim, 1995. "An Integrated Analysis of Turkish Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 513-31, November.
  3. Laura Papi & G. C. Lim, 1997. "An Econometric Analysis of the Determinants of Inflation in Turkey," IMF Working Papers 97/170, International Monetary Fund.
  4. Aykut Kibritcioglu, 2001. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," Economics Bulletin, AccessEcon, vol. 28(21), pages A0.
  5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  6. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  7. De Santis, R., 1993. "An Error Correction Monetary Model Explaining the Inflationary Process in Turkey," The Warwick Economics Research Paper Series (TWERPS) 418, University of Warwick, Department of Economics.
  8. Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May.
  9. C. Emre Alper & Murat Ucer, 1998. "Some Observations on Turkish Inflation: A ''Random Walk'' Down the Past Decade," Working Papers 1998/02, Bogazici University, Department of Economics.
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