The relationship between inflation and main macroeconomic indicators: A comparison between G7 countries and Turkey

The concept of inflation is used by the general public, sometimes correctly and other times wrongly, but always in a negative sense. Inflation, which is defined as the continuous increase of the general level of prices in economics, is a harmful phenomenon for the economy when it progresses at high rates. Increases at the general level of prices that do not affect the decisions of economic actors are defined as moderate inflation and in this case, price stability is assumed. Today, when double-digit inflation rates are considered as high inflation, it is seen that high inflation affects many economic indicators negatively. In this sense, the purpose of this study is to reveal the correlation between inflation and basic macroeconomic indicators. In this study, the correlation of inflation with economic growth, unemployment, openness and foreign direct investments was investigated by taking annual data for the period 1991-2019 for the G7 countries, which are accepted as developed countries, and Turkey as a developing country. Four different models have been established to reveal the relationship between inflation and these basic macroeconomic indicators. For this purpose, the series of G7 countries were taken into consideration and panel data analysis was made for this group of countries. Time series analysis has been done by considering the series belonging to Turkey. In the panel data analysis, it was concluded that inflation does not have a significant correlation with economic growth and unemployment, as it is negatively affected by openness and foreign direct investments are also negatively affected. In the time series analysis conducted for Turkey, it was found that inflation negatively affected economic growth, unemployment and foreign direct investments, while openness was positively affected.