Effects of Inflation Uncertainty on Inflation, Growth, Interest Rate and Exchange Rate in Turkey

In this study, the effects of inflation uncertainty to inflation, economic growth, real exchange rate and interest rate is investigated in the framework of BEKK-MGARCH and DCC-MGARCH models by using the 1987Q1–2013Q3 quarterly periods data in the perspective of Turkey’s economic structure. High inflation periods before 2003 and low inflation periods after 2003 was evaluated separately by means of slope dummy variable. The findings show that during both high and low inflation periods inflation uncertainty does not affect the exchange rate and has an increasing effect on inflation. Whereas, it is found that while the effect of inflation uncertainty on economic growth is positive during the periods of high inflation, its effect turns negative in low inflation periods Moreover, it is determined that inflation uncertainty has an reducing impact on interest rate in high inflation periods and its effects become positive in low inflation periods.