The relationship between inflation, output growth, and their uncertainties: Evidence from selected CEE countries

In this paper, we examine causal relationships among inflation rate, output growth rate, inflation uncertainty and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger-causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental for real economic activity. On the other hand, we find that output growth rate reduces macroeconomic uncertainty in some countries. In addition, we also examine and discuss causal relationships among remaining variables.Inflation, output growth, uncertainty, Granger-Causality tests, transition countries

Enflasyon Belirsizliğinin Üretim Üzerindeki Etkileri : Türkiye Örneği

In this paper we estimate the effects of inflation uncertainty on output gap in Turkey using monthly data for the 1986 - 2006 period. Since it includes both high and low inflationary periods, the said period offers a good sample for assessing the effects of uncertainty on output. The results suggest that inflation uncertainty had negative and statistically significant effects on output both in high inflation and disinflation periods. Our findings imply importance of stabilising inflation at low levels for economic growth.Bu çalışmada, Türkiye için enflasyon belirsizliğinin üretim açığı üzerindeki etkisi, 1986 - 2006 dönemi verileri kullanılarak tahmin edilmiştir. Analizin kapsadığı dönem, hem yüksek enflasyon, hem de düşük enflasyon dönemlerini içerdiği için enflasyon belirsizliğinin etkilerini analiz etmek açısından ilginç bir örneklem oluşturmaktadır. Yapılan analizler, enflasyon belirsizliğinin, hem yüksek enflasyon döneminde, hem de dezenflasyon sürecinde üretim açığı üzerinde negatif ve istatiksel olarak anlamlı etkiye sahip olduğunu göstermektedir. Elde edilen bu sonuçlar, enflasyon oranını düşürmenin yanısıra, düşük düzeyde sabit tutulmasının da büyüme açısından önemli olduğunu ortaya koymaktadır

Enflasyon Belirsizliğinin Üretim Üzerindeki Etkileri : Türkiye Örneği

In this paper we estimate the effects of inflation uncertainty on output gap in Turkey using monthly data for the 1986 - 2006 period. Since it includes both high and low inflationary periods, the said period offers a good sample for assessing the effects of uncertainty on output. The results suggest that inflation uncertainty had negative and statistically significant effects on output both in high inflation and disinflation periods. Our findings imply importance of stabilising inflation at low levels for economic growth.Bu çalışmada, Türkiye için enflasyon belirsizliğinin üretim açığı üzerindeki etkisi, 1986 - 2006 dönemi verileri kullanılarak tahmin edilmiştir. Analizin kapsadığı dönem, hem yüksek enflasyon, hem de düşük enflasyon dönemlerini içerdiği için enflasyon belirsizliğinin etkilerini analiz etmek açısından ilginç bir örneklem oluşturmaktadır. Yapılan analizler, enflasyon belirsizliğinin, hem yüksek enflasyon döneminde, hem de dezenflasyon sürecinde üretim açığı üzerinde negatif ve istatiksel olarak anlamlı etkiye sahip olduğunu göstermektedir. Elde edilen bu sonuçlar, enflasyon oranını düşürmenin yanısıra, düşük düzeyde sabit tutulmasının da büyüme açısından önemli olduğunu ortaya koymaktadır

The relationship between inflation, output growth, and their uncertainties: Evidence from selected CEE countries

In this paper, we examine causal relationships among inflation rate, output growth rate, inflation uncertainty and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger-causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental for real economic activity. On the other hand, we find that output growth rate reduces macroeconomic uncertainty in some countries. In addition, we also examine and discuss causal relationships among remaining variables

The relationship between inflation, output growth, and their uncertainties: Evidence from selected CEE countries

In this paper, we examine causal relationships among inflation rate, output growth rate, inflation uncertainty and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger-causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental for real economic activity. On the other hand, we find that output growth rate reduces macroeconomic uncertainty in some countries. In addition, we also examine and discuss causal relationships among remaining variables

Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States

This article tests the validity of Purchasing Power Parity (PPP) for Commonwealth of Independent States (CIS) countries. For this purpose we test whether the real exchange rate series of 10 CIS countries vis-à-vis the US dollar follow a stationary process. Considering the fact that the CIS countries have undergone major structural changes during the transition period, in addition to conventional unit root tests, we employ recently developed unit root tests that allow for structural breaks and non-linearities. When possible structural changes and non-linearities are not taken into account, the null hypothesis of unit root is rejected only in two out of 10 series. However, allowing for structural breaks and/or non-linearities in the data generating process results in more rejection of the null hypothesis of unit root. All in all, our results provide evidence in favour of the PPP hypothesis in these transition countries.

Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey

In this paper, we investigate possible nonlinearities in the inflation-output relationship in Turkey for the 1980-2008 period. We first estimate a linear bivariate model for the inflation rate and output gap, and test for linearity of the estimated model against nonlinear alternatives. Linearity test results suggest that the relationship between the inflation rate and output gap is highly nonlinear. We estimate a bivariate time-varying smooth transition regression model, and compute dynamic effects of one variable on the other by generalized impulse response functions. Computed impulse response functions indicate that inflation-output relationship in Turkey during the analyzed period was regime dependent and varied considerably across time.Phillips curve Nonlinearity Structural stability

A note on the examination of the fisher hypothesis by using panel co-integration tests with break

One problem encountered when examining the Fisher hypothesis is that various policy changes and economic shocks may induce structural shifts in the long-run relation. We explore the argument that panel cointegration tests based on common correlated effect estimators have reasonably good power and size properties, even in the presence of structural breaks, if the timing of structural shifts roughly coincide to each other across individual group members. Using the data from Omay et al. (2015), which pays special attention to cross-section dependence issue but ignores the possibility of structural break in the data, we provide support to the argument above.Publisher's Versio