Inflation and the Determinants of Growth in Turkey

Whether there is a relationship between price stability and sustainable growth has always been a matter of debate. Thus, a potential relation between the provision of price stability and sustainable growth will direct monetary and financial policies in reaching the economic targets. In this paper, we will discuss the determinants of growth and the inflation-economic growth relationship for the 1998:1-2011:4 quarterly periods in Turkey. The data for these periods have been tested by the Co-integration and Granger causality tests. The findings show that there is a causal relationship from inflation toward economic growth and inflation has a negative effect on growth in the long term. Furthermore, error correction model has been applied based on the presence of cointegration. The analyses have showed the basic determinants-(political stability (PS), gross capital formation (GCF), net export (XN) and Consumer Price Index (CPI)- are in a significant relationship with growth.