Inflation - Foreign Trade Relationship: A Comparative Econometric Analysis Between the EU-28 Countries and Turkey

İbrahim Çütcü

Abstract


Inflation, which indicates the continuous increase in the general level of prices, affects many macroeconomic indicators, especially foreign trade. Turkish economy has not stabilized for many years because of the negative effects caused by inflation. However, in recent years, there has been considerable developments in many variables especially in foreign trade with the decrease in inflation to single-digit numbers. In general theory, the increase in inflation leads to an increase in imports while reducing exports. In the study, the relationship between foreign trade and inflation is analyzed by structural breaks in time series methods through monthly models between the EU-28 countries and Turkey for the periods 2005: 01 - 2017: 12.  In the analyzes, Zivot-Andrews stationarity tests were used which allowed structural break as well as ADF and PP unit root tests. Engle-Granger and Gregory-Hansen Cointegration Tests were used for analysis of cointegration relations and Granger and Toda-Yamamoto Causality Tests were used for analysis of causality relations between variables. By interpreting the findings obtained as from analyzes, the policy propositions was held related to Turkey's EU full membership process.

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