Inflation and Inflation Uncertainty: Evidence from Turkey, 1923–2012

dogru, bulent (2013): Inflation and Inflation Uncertainty: Evidence from Turkey, 1923–2012.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Uncertainty, Conditional Variance, Granger Causality, Exponential Generalized Autoregressive Conditional Heteroskedastic Model
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation

References

Ball, Laurence (1992). "Why does high inflation raise inflation uncertainty?". Journal of Monetary Economics 29(3): 371-388.

Berument, Hakan, Metin-Özcan Kıvılcım and Bilin Neyaptı (2001). “Modelling Inflation Uncertainty Using EGARCH: An Application to Turkey”. Bilkent Üniversitesi Tartışma metni

Cukierman, Alex and Allan H. Meltzer (1986). "A theory of ambiguity, credibility, and inflation under discretion and asymmetric information". Econometrica: Journal of the Econometric Society: 1099-1128

Erkam, Serkan (2008). “Enflasyon ve Enflasyon Belirsizliği: Türkiye Örneği". Sosyoekonomi (157): 157-174.

Engle, R. (1982). “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation,” Econometrica, vol. 50. no. 1, 1982, pp. 987–1007

Holland, A. Steven (1995). "Inflation and uncertainty: tests for temporal ordering." Journal of Money, Credit and Banking 27(3): 827-837.

Friedman, Milton (1977)."Nobel Lecture: Inflation and Unemployment." Journal of Political Economy, 85: 451-472.

Nas, T. Fikret and Mark. J. Perry (2000). “Inflation,Inflation Uncertainty, and Monetary Policy in Turkey: 1960-1998”. Contemporary Economic Policy, 18(2): 170-180.

Nelson, D.B., (1991), "Conditional Heteroskedasticity in Asset Returns: A New Approach", Econometrica, 59, 347-370.

Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: Journal of the Econometric Society, 1361-1401

Thornton, J. (2007). The Relationship between Inflation and Inflation Uncertainty in Emerging Market Economies. Southern Economic Journal, Vol. 73, No. 4, pp. 858-870