INFLATION UNCERTAINTY IN TURKEY: EVIDENCE FROM EGARCH MODELING

İngilizce (OpenAlex)

Inflation leads to significant welfare losses to society, even if it is predictable. Inflation uncertainty also has welfare costs via distorted relative prices and resource allocation. Turkish economy experienced high and highly volatile inflation since 1970s. This study investigates the relationship between inflation and inflation uncertainty employing the AR-EGARCH-M model using monthly Turkish inflation data between January 1968 to December 2017. The empirical results suggest that higher inflation rates increased inflation uncertainty in Turkey, providing strong support for the Friedman-Ball hypothesis. However, the response of inflation uncertainty to inflation is negative but not statistically significant. Lastly, the asymmetric effect has been found to be statistically significant, which implies that a positive shock increases inflation uncertainty less than a negative shock.