The Forced Equilibrium: Growth, Inflation, and Investment: Empirical Evidence From Turkiye

Abstract

This study embarks on a comprehensive exploration of the intricate dynamics between economic growth, inflation, and investment within the unique economic landscape of Turkiye. Spanning from the years of 1998 to 2022, the analysis meticulously delves into a repository of data sourced from reliable datasets. Leveraging a sophisticated analytical toolkit, including Narayan and Popp (2010)'s Unit Root Test, Lee and Strazicich's Unit Root Test, as well as VAR Model and VAR Granger Causality Test methodologies, the study aptly accommodates the multifaceted nature of structural breaks inherent within the Turkish economy. The culmination of this rigorous analysis unveils compelling insights into the complex interplay among these pivotal economic variables. Notably, the findings elucidate the presence of distinct unidirectional causality relationships, highlighting the profound impact of both investment and economic growth on shaping the trajectory of inflation within Turkiye. This revelation serves to underscore the pressing imperative for Turkiye to meticulously navigate a delicate equilibrium between its ambitious developmental aspirations and the pressing need to effectively combat inflationary pressures. Situated within this intricate balance lies a formidable challenge for Turkiye, necessitating the formulation of astute policy interventions aimed at reconciling this inherent paradox. It becomes abundantly clear that any policy measures devised must strike a delicate balance, effectively addressing the dual objectives of fostering sustainable economic growth while simultaneously mitigating the adverse effects of inflation. Moreover, it is imperative for Turkiye to steadfastly adhere to the implementation of these policies, ensuring their efficacy in navigating the complex economic landscape. In essence, this study serves as a clarion call for Turkiye to adopt a holistic approach toward economic policymaking, one that not only acknowledges the multifaceted nature of economic interdependencies but also embraces the imperative of striking a delicate balance between competing objectives. By charting a prudent course forward, Turkiye can effectively surmount the challenges posed by this intricate economic landscape, paving the way for sustained economic prosperity and resilience in the years to come.