Tradeoff between inflation and unemployment in Turkey

Abstract

As a popular subject, over the years the inflation-unemployment tradeoff also known as the Phillips curve attracted the attention of economists and policy makers. Accordingly, our paper aims to investigate the relationship between unemployment and inflation in the Turkish Economy. We employed the Autoregressive Distributed Lag (ARDL) Bounds Testing procedure on monthly inflation and unemployment rate data for the period adopting the Explicit Inflation Targeting Regime from 2006 to 2011 in Turkey. Empirical results reveal that unemployment negatively affects inflation in the short run but there is no causation between them in the long run. These findings provide significant implications for not only the literature focuses on trade-off between inflation and unemployment but also the efficiency of inflation targeting commitment implemented in Turkey.