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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.

Suggested Citation

  • dogru, bulent, 2013. "Inflation and Inflation Uncertainty: Evidence from Turkey, 1923–2012," MPRA Paper 51232, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:51232
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    File URL: https://mpra.ub.uni-muenchen.de/51232/1/MPRA_paper_51232.pdf
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    References listed on IDEAS

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    1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    2. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    3. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
    4. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    5. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    6. Holland, A Steven, 1995. "Inflation and Uncertainty: Tests for Temporal Ordering," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 827-837, August.
    7. 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.
    8. Serkan ERKAM, 2008. "Enflasyon ve Enflasyon Belirsizliği: Türkiye Örneği," Sosyoekonomi Journal, Sosyoekonomi Society, issue 2008-1.
    9. 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, April.
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    More about this item

    Keywords

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

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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