On the links between inflation, output growth and uncertainty: System-GARCH evidence from the Turkish economy

Abstract

In this study, the causal relationships between inflation, output growth and uncertainty have been re-examined for the Turkish economy. Based on the system-GARCH methodology, estimation results reveal that for the 1987M01 2008M09 investigation period with monthly data, the mutual Granger causality between inflation and inflation uncertainty cannot be rejected in a positive way. For the output growth and uncertainty relationship, it is observed that the larger the output growth the lower the output growth uncertainty. Some evidence have also been obtained in favor of that an increase in inflation uncertainty lowers output growth and that an increase in the latter lowers the former Furthermore, an increase in output growth uncertainty is likely to lead to more inflation. Consequently, it is inferred that policies aiming at reducing inflation would lead to a more efficient functioning of the price system, and this would contribute to the real output growth.