Econometric analysis of relationship between economic growth and inflation in consideration of sectors: Turkey case

In this study, inflation-economic growth relation was analyzed for 1987: 1-2007:3 period on a sectoral basis. Relationships between inflation and growth and sectoral growth were analyzed within the framework of business cycle of the series, in other words business networks, with cross correlation analysis and cause and effect functions. For this purpose, with total GDP and sectoral GDP series, cyclical components of Consumer Price Index and three-month inflation rates were obtained. Cyclical components of the series ? of the series that were corrected seasonally with exponential smoothing series ? line shift filter, which is defined with the study of Baxter and King (1995) was obtained. Cyclical components of total and sectoral outputs were firstly analyzed graphically, and then by calculating cross- correlation coefficients. Data used in the study were obtained from website of Turkish Statistical Institution (TÜİK). Empirical results indicate that the reason for the negative relation between inflation and economic growth within Turkish economy may be supply shocks in all analysis periods. Supply shocks at the same time explain the negative relation between the growth of industry sector and services sector and the inflation. Despite the fact that results obtained through cause-effect functions support these finding in most situations, it was observed that all results differ depending on the sub-period analyzed. The validity of this relationship with a representative of the supply shocks, oil prices were included in the model were examined and the results also support findings were obtained.Keywords :1)Inflation2)Economic Growth3)Business Cycle4)Turkish Economy