ASYMMETRIC EFFECTS OF INFLATION AND INFLATION UNCERTAINTY ON OUTPUT GROWTH: EVIDENCE FROM TURKEY BASED ON THRESHOLD AUTOREGRESSIVE (TAR) MODEL

This paper empirically examines whether the effects of inflation and inflation uncertainty on output growth vary depending on the level-high or low- of the inflation environment in Turkey. This study adopts the recently developed threshold autoregressive (TAR) model, which can predict the threshold level endogenously. The empirical results indicate that the inflation level below the 12.15% threshold has a statistically significant and detractive effect on output, but inflation uncertainty has no effect. On the other hand, the negative effect of inflation above the threshold level on output continues, although it decreases, and the effect of inflation uncertainty on output turns from meaningless to strongly negative. That is, the findings point out that industrial production is more affected by the inflation level in a relatively low-inflation environment and by inflation volatility in a high one.