A small scaled business-cycle analysis of the Turkish economy: some counter-cyclical evidence using new income series

In this paper, a small scaled business cycle analysis is tried to be conducted for the Turkish economy. For this purpose we try to extract the knowledge of cyclical correlations between real income and prices/inflation considering 1998: 100 based new income series data and then examine pro- or counter-cyclical characteristics of these aggregates. Our estimation results indicate that both deflator based price level and inflation have a counter-cyclical relationship with real output in a way supporting what the supply-driven business cycle models bring out. To further examine the direction of the relationship between the cyclical components of price level/inflation and real income, we apply to the generalized impulse response analysis. The results verify that there exists a data consistent strong negative interaction between real output and price level/inflation. Considering all these findings, we conclude that no credibility must be attributed to the discretionary demand-driven Keynesian policies to stabilize the effects of the business cycles witnessed by the Turkish economy and that the policies permitting to supply shocks which will lead to a negative interaction between output and prices, rather, must have been of a special importance in the eyes of economic agents and policy makers.