The concept of stagflation: The case of Turkey 1987-2014

The crisis that broke out in 1973 brought a new term in economics. This new type of crisis during which both inflation and recession coexisted was named stagflation. According to the economists of 1970s, the major cause of this situation was the three times increase in oil price by the member countries of OPEC. Turkey faced stagflation for the first time in 1977 when the ongoing recession was accompanied by inflation. Turkey confronted economic crises several times in various periods. In this context, the crises of 1994, 2000, 2001 and 2008 are of paramount significance. The primary reasons of these crises can be listed as high inflation, liberalization in capital movement, malfunctions is banking sector, and the influence of the crises taking place in other countries. This study aims to reveal the influence of public expenditures, exchange, interest rate, money supply, and petrol price on stagflation in Turkey between 1987:1 and 2014:4. In this direction, stagflation is generated as a discrete serial which, get value of 1, in case of depression and inflation occur simultaneously and get value of 0 when depression and inflation occur at different times. The effect of the relevant macroeconomics indicators on stagflation has been estimated with logit model. The findings accumulated has shown that the indicators of money supply and public expenditures had respectively positive and negative influences on stagflation between 1987:Q1 and 2014:Q4. On the other hand, it has been found that exchange, interest rate, and petrol price did not have a significance effect on stagflation in terms of statistics. When the findings are evaluated as a whole, it has been determined that the money supply should not be increased whereas the increase in public expenditure should be ensured in order to struggle with stagflation.