Symmetric and asymmetric analysis of causality relationship between inflation and inflation uncertainty: The case of Turkey

One of the most important costs of inflation is inflation uncertainty. It is important to examine the relationship between inflation and inflation uncertainty due to the negative effects it causes in the real and financial sectors. In this context, the scope of work is that the natural log of the Consumer Price Index (CPI) was used to represent the inflation series, and the inflation uncertainty series was obtained using the EGARCH method. In the study, the relationship between inflation and inflation uncertainty for the period 2003:01-2020:06 was examined by symmetric Toda-Yamamoto and Hacker and Hatemi-J (2006) causality tests. Afterwards, the causality relationship between variables was analyzed for sub-periods with the time-varying asymmetric causality test. According to symmetric tests, a bidirectional causality relationship has been found between inflation and inflation uncertainty. Looking at the time-varying asymmetric causality test results, there are causal relationships from positive shocks in inflation to positive shocks in inflation uncertainty for the period 2011:12-2020:06, from negative shocks in inflation to negative shocks in inflation uncertainty for the period 2017:12-2020:06 and from negative shocks in inflation uncertainty to negative shocks in inflation for the period 2016:10-2020:06. These results indicate that mutually affect each other of inflation and inflation uncertainty in Turkey.