The Footprints Of Stagflation In Turkish Economy

The Inflation, in which most of the countries interfere and which is an important concept, states constant raise ingeneral level of prices. Although many policies have been applied throughout the history, the inflation is a problem which was and always will be inside the economy. High and perpetual inflation has a negative effect on society and economy. In an inflationary environment, many negative effects such as raise in production costs, investment decisions’ becoming difficult, decrease in savings and emergence of foreign trade deficit come into existence. On the other hand, unemployment, which takes an important place in economy like the inflation, expresses the situation in which people cannot work because of various reasons. Beyond being an economic problem, unemployment can be described as a social problem as it creates moral and material negativities in social life. Since approximately 1970s, Turkey have been facing both unemployment and inflation problem. Both inflation and unemployment draw conclusions that can leave indelible effects on economy all by itself. In Turkey, both in the period when there was an import substitution oriented policy and after the January 24th decisions period when the foreign trade was liberalized, the policies related to inflation and unemployment couldn’t be developed well. So, since the 1990s when outward-oriented industrialization strategies were applied, the inflation and unemployment have raised with the ’94 Depression in Turkey, ’97 Depression in Asia, ’98 Depression in Russia, 2001 Economic Depression and 2008 Global Financial Depression. In order to provide stability, one of the important elements is to adopt an economic policy in which low rate inflation and less unemployment can be valid. There are many studies made in literature in order to define the relation between inflation and unemployment. The most important one among them is Phillips Curve and it defines the relation between inflation and unemployment in theory. According to this approach, the decrease in unemployment will result in the raise in inflation. However, although Turkey displayed a positive image in 2000s proving this theory, the question of “Are we going back to the days of stagflation?” flashes with its performance after 2010. Thus, the relation between variables are analyzed and the results are interpreted by using the inflation and unemployment data covering the period between 1990-2014 in order to present the relation between inflation and unemployment in Turkey, based on the importance of inflation and unemployment in economy.