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Mathematical Problems in Engineering
Volume 2014, Article ID 284161, 19 pages
http://dx.doi.org/10.1155/2014/284161
Research Article

Modelling Inflation Uncertainty with Structural Breaks Case of Turkey (1994–2013)

Department of Economy, Faculty of Economy and Administration, Muğla Sıtkı Koçman University, 48000 Muğla, Turkey

Received 26 July 2014; Accepted 24 August 2014; Published 11 September 2014

Academic Editor: Erol Egrioglu

Copyright © 2014 Pınar Göktaş and Cem Dişbudak. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

In recent years, the importance attached to the concept of volatility has increased and become a phenomenon frequently encountered in every field ranging from financial markets to macroeconomic indicators. In this study, inflation data obtained from CPI index for the period of 1994:01–2013:12 in Turkey was used to determine the best representative of the inflation uncertainty. To realize this, both symmetric and asymmetric GARCH-type models were employed. Since there are many factors that may lead to structural change within the economic course of Turkey, a structural break in the series has first been investigated. By administering Bai-Perron structural break test, two different break points both in mean and variance have been detected to be in February 2002 and in June 2001, respectively. The inclusion of those break points to the related equations, appropriate forecasting models were projected. Moreover it was found that, while in the periods prior to the break in both variance and mean the inflation itself was the reason for inflation uncertainty, following the dates of the break, the relationship changed bidirectionally. In the meantime, when the series was taken as a whole without considering the break, bidirectional causality relationship was also detected in the series.