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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.

Suggested Citation

  • Ozturk, Ilhan, 2002. "Velocity Effect On Inflationary Growth of Turkey: Evidence From Co-integration Analysis and Granger's Causality Test," MPRA Paper 259, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:259

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. 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 139-154, May.
    4. Kibritçioğlu, Aykut, 2002. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 43-76.
    5. Laura Papi & G. C. Lim, 1997. "An Econometric Analysis of the Determinants of Inflation in Turkey," IMF Working Papers 97/170, International Monetary Fund.
    6. 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 253-277, August.
    7. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    9. 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 513-531, November.
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    More about this item


    Velocity; Co-Integration Tests; Error Correction Mechanism; Granger’s Test;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles


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