THE RELATIONSHIPS BETWEEN INFLATION AND ECONOMIC GROWTH WITH ARDL APPROACH: STUDIES ON TURKEY

In this study, the relationship between inflation and economic growth is investigated. Perspectives on the relationship between inflation and economic growth focus on three points in the literature on this issue. The first view argues that there is a positive relationship between inflation and economic growth, the second one claims no relationship, and the third one asserts that relationship is negative. The view claiming the existence of a positive relationship contends that the effects on growth structure up to a certain value threshold or a certain limit in the inflation and that if the value threshold is exceeded neutral and even negative effects will be engendered. On the other hand, this response can only be observed in the short term, whereas in the long run neutral effects are discussed. In the studies dealing with inflation-growth relationship, regression, unit root and co-integration analysis are conducted in general, but the absence of Cobb-Douglas analysis attracts attention particularly in the studies related to Turkey. In this study, beginning with a Cobb-Douglas type growth equation, a result of the analyses using limit test predictions, it is observed that current inflation rate has negative effects on growth in the short term in Turkish economy and that one period later, the effects turn into positive and that net effect causes neutrality. In the long run predictions, it can be stated that similar results are found and therefore, inflation has no effect on growth. Hence, it can be concluded that the on-going high inflation for many years in Turkey led to negative effects by causing uncertainty on economic growth.