STOCHASTIC DETERMINANTS OF INFLATION: A NARDL APPROACH FOR TURKISH ECONOMY

In the economic literature, there is no consensus on the direction of the relationship between interest and inflation in the context of economic policies. In addition to the recent high inflation rates in the Turkish economy, nominal interest rates also have an increasing trend. Therefore, the relationship between inflation and nominal interest rates was examined as asymmetrical for the Turkish economy in the study. At this point, the nonlinear boundary test approach (NARDL) was used for the 2004:01-2018:05 data period due to the possibility of long term nonlinear relations between inflation and interest. The exchange rate and the budget balance, which can be effective in determining the inflation rate, are also included in the model as control variables. According to the analysis findings, there is long-term asymmetric cointegration relationship between variables. It was concluded that while inflation and nominal interest rates have symmetrical relationship in the short run, they have asymmetric relationship in the long run. When the relationship between budget balance and inflation is examined, the results support the Ricardian approach