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Effects of Inflation Uncertainty on Economic Policies: Inflation-Targeting Regime

In: Financial Management from an Emerging Market Perspective

Author

Listed:
  • Mehmet Kenan Terzioglu

Abstract

Inflation uncertainty maintains its importance in emerging economies as well as in others. Increases in the level of inflation uncertainty constitute an important risk factor by affecting macroeconomic variables in the markets that are sensitive to price changes. The stabilization programs implemented in Turkey during 1980-2003 could not reduce the sensitivity of economic structure to inflationary shocks. Between 2003 and 2015, changes occurred, switching from high inflation to the single-digit inflation rates, in Turkey with transition to the inflation-targeting regime. Within the scope of this study, the effect of inflation uncertainty on inflation, economic growth and selected monetary-fiscal policy variables was examined using multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) models. The dynamic conditional covariance model is designed to reflect the strong time-dependent correlation structure. While the inflation-targeting regime studies in developing countries focus on either the adoption or nonadoption of such a regime and its feasibility, this study evaluates the success of the regime in Turkey as an emerging economy.

Suggested Citation

  • Mehmet Kenan Terzioglu, 2018. "Effects of Inflation Uncertainty on Economic Policies: Inflation-Targeting Regime," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
    • Handle: RePEc:ito:pchaps:129956
    DOI: 10.5772/intechopen.71625
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    More about this item

    Keywords

    inflation uncertainty; inflation targeting; monetary policy; fiscal policy; MGARCH models;
    All these keywords.

    JEL classification:

    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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