Inflation and unemployment spiral in Turkey

The relationship between inflation and unemployment has been one of the areas that have attracted the economists' interest and when the literature has been reviewed, different results has been come across. In this study, the relationship between inflation and unemployment was analyzed theoretically and empirically. Monthly data concerning the period between 2005:1 and 2018:12 of Turkey's economy was used in the empirical analysis of the study. The cointegration relationship between the variables was tested with the bound test developed by Pesaran, Shin and Smith (2001). The short and long term relationships between the variables were analyzed with the ARDL (Autoregressive Distributed Lag) model. In addition, Toda-Yamamoto causality analysis was applied and the direction of causality relationship between variables was determined. According to the results of the analysis, it is concluded that there is a cointegration relationship between inflation and unemployment. In addition, it has been determined that there is a significant and positive relationship between inflation and unemployment in the long term. In the short term, it has been concluded that there is a significant and negative relationship between the analyzed inflation and unemployment. Finally, the causality analysis reveals that there is a one-way causality relationship from inflation to unemployment. Key Words: Inflation, Unemployment, Bound Test, ARDL Model, Toda-Yamamoto Causality Analysis