INFLATION VARIABILITY AND THE TURKISH ECONOMY

The present paper investigates the effects of inflation variability on the level of economic activity in Turkey during 1981:3-1989:12 by employing a seven-variable vector autoregressive (VAR) model including the money supply, interest rate, real exchange rate, price level, a measure of inflation variability, output and the trade balance. The empirical findings indicate that while the output, the money supply, and the real exchange rate respond negatively to a shock to inflation variability, the trade balance and the interest rate respond positively. The responses are usually significant at the initial stages and they level off after six months.