ABSTRACT
Abstract: This chapter investigates the links among inflation, inflation uncertainty and real output growth in Turkey from 1963-2000. Inflation uncertainty is generally assumed to be positively associated with the level of inflation and negatively related to real output growth. Although both relationships (inflation-inflation uncertainty and inflation uncertainty-output) are closely related theoretically, they have previously been empirically investigated separately, mostly in the low inflation G-7 countries. The contribution of this chapter is to investigate these two relationships for the first time in the high inflation country of Turkey using a single statistical, bivariate GARCH-M system of equations. We find strong statistical support that a) monthly inflation significantly raises inflation uncertainty (measured by the conditional variance of inflation) and b) inflation uncertainty significantly lowers real output growth over the sample period.
