Effects on economic growth of inflation, unemployment and exchange rate: Turkey example (2003-2015)

Unemployment, inflation and exchange rate are the main problems that have been discussed in the world economies for many years. Policymakers are developing many policies to reduce the negative effects of these three macroeconomic variables on the economy. In this study, the effects of unemployment, inflation and exchange rate on economic growth has been researched. For this purpose, Turkish economy is analyzed using quarterly data, 2003Q1-2015Q4. The variables used are GDP, TFP as growth data, seasonally adjusted unemployment rates and real exchange rate. The study consists of three parts. In the first part, growth patterns have been studied by examining the definition, scope and purposes of the economic growth. In the second part of the study; unemployment, inflation and exchange rate variables have been defined and the effects of these three macro variables on growth have been examined. Then, literature review was conducted in the third section and econometric application has been done. In the application phase, ADF test was applied by examining the unit roots of the series. Cointegration method has been used to investigate whether these cohorts were cointegrated or not. It has also been studied whether there is a relationship in the long-term or not. Finally, we tried to figure out which variable is the most effective one on the growth model and the availability of the effective variable as a policy tool by means of variance decomposition and effect response analysis. However, there is no need for analysis of variance decomposition because it is the only effective variable on the growth model (real exchange rate). After the impact response analysis, the growth rate (GDP) of a standardized shock in the real exchange rate is stabilized until the third period, while a decrease is observed in the fourth and fifth periods. There is an increase in the growth rate from the sixth period until the eighth period. It has been observed to decrease again from the ninth period. Keywords: Unemployment, Inflation, Exchange Rate, VAR Analysis