Analysis of the relationship between inflatıon and economic growth in Turkey

Abstract

The link between inflation (CPI) and economic growth (Real GDP) is the one of the main issues of macroeconomics. Many theoretical and empirical studies has discussed this topic. Therefore, this relationship in the economics literature investigate with different countries, period and empirical studies. There is no consensus on this relationship in empirical evidences. The main purpose of this study is to determine whether there is a causal relationship between inflation and economic growth in Turkey's economy between the period 2003:1-2015:4. To analyze this relationship we used Vector Autoregressive Model (VAR) and Granger causality test. Our findings indicate that there is one-directional causal link from economic growth to inflation. With this aspect of study is distinguished from conducted other studies for Turkey. Especially, within this period 2002 Emergency Action Plan which was put into practice after 2001 economic crisis and the contraction in the world economy caused a domestic-demand-based economic growth in Turkey. Hence, our findings are in accordance with these economic circumstances.