Abstract

The relations between economic growth, unemployment, inflation and current account balance are analyzed theoretically and different comments on theoretical approaches are discussed in the study. Accordingly, while the unemployment-inflation relationship is considered with Phillips analysis and the scope of the growth-unemployment with Okun Law, the interaction between the current account balance and growth is shown with the equality of national income accounting. After the theoretical approaches described in detail with shared data and interpreted for Turkey. This study also examines the relation between the unemployment, inflation, economic growth, current account deficit with symmetric and asymmetric reserved causality tests were examined for the 2000Q1 − 2020Q4 period. The asymmetric hidden causality relationships between the series were researched with Hatemi-J (2012) method based on Toda-Yamamoto (1995) test in this study. When the relationship between the growth rate and the unemployment rate are examined between these years in Turkey it is observed that there is an inverse relationship between growth and unemployment, especially during crisis periods. After that to find this relationship we used symmetric and asymmetric causality. As a result of the estimates growth also has a one-way symmetrical causality relationship from negative shocks to negative inflation shocks. When the relationship between them is viewed only with one-way or two-way causality, there may be no relationship so the causality must be checked asymmetrically even to catch the assumption of the Okun’s law correctly for Turkey.

Highlights

  • The economic growth, unemployment, inflation and current account balance are the most important variables that show the performance of an economy

  • The law developed by Okun states that if the growth rate exceeds the trend or average growth rate measured at 2.25%, it will lead to a decrease in the unemployment rate

  • Data and variables In this study we used Turkey’s current account deficit (CAD), economic growth (G), inflation (INF) and unemployment rate (UR) data are used for the period 2000Q1-2020Q4

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Summary

Introduction

The economic growth, unemployment, inflation and current account balance are the most important variables that show the performance of an economy. The relations between growth, unemployment, inflation and current account are first discussed in theoretical terms and it is examined whether these theories are valid or not in the case of Turkey. After this topic was discussed in the first part of the study after the case of Turkey was examined and discussed Another theoretical approach that attempts to explain the relationship between macroeconomic variables analysis are known as Okun’s law. The Okun’s law was explained in details in the second section and its validity was tested for Turkey in the last section with symmetric and asymmetric causality The another important indicator of a country’s economic performance in macroeconomics is the current account balance.

Unemployment and inflation relationship
Relationship between growth rate and unemployment
Growth and current account balance
Data and variables
Econometric methods
Findings
Conclusion
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