Business & Management Studies: An International Journal
Yazarlar: Hande KILIÇ SATICI, Hakan ÖNER
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Özet: 1. LITERATURE 1.1. RESEARCH SUBJECT In the following section, we discuss the literature that examines the relations between budget deficit, inflation and exchange rates. Kıvılcım (1998) concluded that the budget deficit caused inflation. Akçay, Alper and Özmucur (2001) In the long run, it has been determined that there is no relationship between the inflation rate and the consolidated budget deficits, but the public sector borrowing requirement. Şen (2003) 1987-2000 determined that the increase in inflation caused a significant loss in the reel value of tax revenues. Kesbiç, Baldemir and Bakımlı (2005) found that budget deficit had an increasing effect on inflation. Barışık and Keskinoğlu (2006) determined a dual causality relationship between budget deficit – inflation and current account deficit – growth. Altıntaş, Çetintaş and Taban (2008) No relationship has been found between the inflation rates and the budget deficit in the short and long term. Şahin (2014) determined that the application of inflation targeting has a positive and significant effect on public expenditures and the output gap. Doğru (2014) determined that the budget deficit and inflation rate are cointegrated in the long run, and the budget deficit inflation is the Granger cause of the short run. Erkam and Çetinkaya (2014), a causality relationship from budget deficit to inflation was determined between January 1987 and December 2004. This causality relationship was not found in the low inflation period between January 2005 and December 2013. Kaya and Öz (2016), no significant relationship was found between budget deficit and inflation. Leigh and Rossi (2002) In their study, where they examine the relationship between the changes in the reel exchange rate and the price level, the transition effect disappears after 4-12 months. Kara and Öğünç (2005) while Granger causality is found from exchange rate to consumer price indices under the fixed exchange rate regime, it has been determined that there is no causality relationship in the period after the transition to free-floating exchange rate regime. Özçiçek (2007), the effect of devaluation on inflation during crisis periods is high. Civcir and Akçağlayan (2009) interest rate respond strongly to exchange rate shocks and weakly responds to the output gap, a related variable indicating the use of a monetary policy index or some form of managed management for monetary policy between January 1987 - December 2009. Günaydın (2000) 1968-1998 Granger causality has been determined from the reel budget deficit to the reel exchange rate, from the inflation rate to the reel exchange rate. Gülcan and Bilman (2005) the relationship between budget deficits and reel exchange rates have been determined between 1960-2003. İlgün, Dumrul and Aysu (2014) it was determined that the increase in inflation and the budget deficit increased the reel exchange rate. Öner (2018) Granger causality test concluded that changes in CPI and PPI inflation rates do not affect the nominal exchange rate. 1.2. RESEARCH PURPOSE AND IMPORTANCE The relationship between budget deficit, inflation and exchange rates are significant for Turkey, which aims macroeconomic stability. For this reason, budget deficit, inflation and exchange rate are used as variables in the study and examining the relationship between these three macroeconomic variables is the main subject of the study 1.3. CONTRIBUTION of the ARTICLE to the LITERATURE The purpose of this study, the interaction of three key macroeconomic variables Granger causality test in Turkey is applying to identify analysis. Besides, impulse-response functions and variance decomposition methods are used to determine the dynamic relationships between variables. 2. DESIGN AND METHOD 2.1. RESEARCH TYPE The relationship between budget deficit, inflation and exchange rate is examined through the Granger causality test. Following the causality test, impulse-response analysis and variance decomposition methods are also applied. From this point of view, the main subject of the study is to examine the relationship between these three macroeconomic variables. 2.2. RESEARCH PROBLEMS One of the most critical problems of the research is that a significant global crisis occurred in 2008 could have an impact on the research results. However, as a result of the research, relationships between macroeconomic variables were determined. 2.3. DATA COLLECTION METHOD The data set used in the study are obtained from the Ministry of Finance and Treasury of the Republic of Turkey and the Central Statistics Electronic Data Distribution Service (EDDS). 2.4. QUANTITATIVE / QUALITATIVE ANALYSIS In the study, the data are analyzed using the E-views 8 econometrics program. Econometric analysis is carried out using data on-budget deficit, inflation and reel exchange rate consisting of 144 monthly observations between January 2006 and December 2017. 2.5. RESEARCH MODEL Granger causality test, impulse-response function and variance decomposition methods are used in the study. 2.6. RESEARCH HYPOTHESES In the study, the relationship between budget deficit, exchange dry and inflation is examined through the Granger causality test. Null Hypothesis (H0): Independent variable rate change is not the cause of the dependent variable. Alternative Hypothesis (H1): Independent variable rate change is the cause of the dependent variable. Impulse-response functions and variance decomposition methods are used to reveal dynamic relationships between variables. 3. FINDINGS AND DISCUSSION 3.1. FINDINGS as a RESULT of ANALYSIS According to the Granger causality test analysis results, if the budget deficit is a dependent variable, a bilateral causality relationship from both the CPI inflation rate and the reel USDTRY rate to the budget deficit has been determined. If the CPI inflation rate is the dependent variable, a causality relationship from the budget deficit and USDTRY reel rate to the CPI inflation rate has not been found. In the case where the reel USDTRY rate is the dependent variable, the causality relationship from the budget deficit and the CPI inflation rate to the reel US dollar has not been determined. The budget deficit reacts to the shocks from it for two months. The positive effect is seen until the 1st month, then turns negative between the 1st and 2nd months and reaches the equilibrium point at the end of the 2nd month. While the budget deficit reacts positively to the CPI variable until the 2nd month and negatively between 2-4 months, it does not react significantly to the reel USDTRY rate. One unit of shock in the CPI variable has an immediate effect on itself and continues its effect up to 3.5 months. While the positive effect of the CPI variable continues up to 3.5 months, the severity of the effect decreases between 3.5 and 4.5 months and turns negative. The reel USDTRY rate, which reacts positively to the shock in the first month on itself, continues the positive response up to 2.5 months. At the end of 2.5 months, the severity of the reaction of the reel USDTRY exchange rate decreases and reaches balance. While reel USDTRY gives positive and negative reactions to the budget deficit variable until the 10th month, it gives positive and negative reactions to the CPI variable until the 9th month, although its severity is not high. The variance of the budget deficit variable is explained by 97% in the second period, 2.19% of the change in the variance of the budget deficit is explained by the CPI and 0.77% by the reel USDTRY. The variance of the CPI variable is explained by 99.75% in the 2nd period; this rate increases to 95.30% in the 4th period and to 99.13% at the end of the 11th period. Finally, while the variance of the reel USDTRY variable is explained by itself in the 2nd period with a rate of 96.74%, the rate of self-disclosure is not changed but remains horizontal. 3.2. HYPOTHESIS TEST RESULTS According to the results of the hypothesis test; Null Hypothesis (H0): Independent variable rate change is not the cause of the dependent variable. Alternative Hypothesis (H1): Independent variable rate change is the cause of the dependent variable. H0 accepted; a causality relationship from the budget deficit and reel USDTRY rate to the CPI inflation rate has not been found. Moreover, the causality relationship from the budget deficit and the CPI inflation rate to the reel US dollar has not been determined. H1 accepted; a bilateral causality relationship from both the CPI inflation rate and the reel USDTRY rate to the budget deficit has been determined. 3.3. DISCUSSING the FINDINGS with the LITERATURE According to the results of the study using monthly eyes between January 2006 and December 2017, a bilateral causality relationship was found from a budget deficit to reel exchange rate and budget deficit to inflation rates. The results of this causality relationship were found in the same direction with the following studies: Kıvılcım (1998), Kesbiç, Baldemir and Bakimli (2005), Kara and Öğünç (2005), Barışık and Keskinoğlu (2006), Özçiçek (2007), Civcir and Akçağlayan (2009), Doğru (2014), Öner (2018). 4. CONCLUSION, RECOMMENDATION AND LIMITATIONS 4.1. RESULTS of the ARTICLE According to the results of the econometric analysis, in Turkey between January 2006 and December 2017 CPI changes in reel US dollar with changes in the inflation rate it unilaterally affects the budget deficit. Many developing countries because it is in Turkey as well as the essential item on the tax revenues of the budget revenues, income tax changes that affect the rate of inflation, and this causes a change in the budget deficit. A bilateral causality relationship has been determined between budget deficit and inflation. This result coincides with the results of Erkan and Çetinkaya's (2014) study. A bilateral causality has been determined between the budget deficit and the reel USDTRY rate. The volatility in the reel USDTRY rate effects on the budget deficit in the period of 2006-2017. The change in the exchange rate is not only a factor affecting the foreign trade balance but also a factor affecting the budget deficit that occurs when budget expenditures are more than budget revenues. In addition to increasing tax revenues, borrowing is one of the essential methods for financing the budget deficit. Among the interest expenses, which are an essential expense item within the budget expenditures, the external debt interest expenditures increase with the increase of the reel USDTRY rate and coincide with the causality relationship from the exchange rate determined in the analysis to the budget deficit. The causality relationship between the reel USDTRY rate and the inflation rate could not be determined in the relevant period. Empirical literature in Turkey for the period before the 2000s in the analysis, some studies are determined to exchange rate of inflation causality. However, this causality relationship started to decrease, especially in the analysis made for the period after the transition to inflation targeting. From 2006 to 2017, in which explicit inflation targeting was applied, the increase in capital inflows to developing countries and the decrease in USDTRY exchange rate volatility, as well as the stable implementation of the inflation targeting monetary policy applied in our country, especially consumer inflation rates and the reel exchange rate. Can be shown as the reasons why the causality relationship between cannot be determined. It coincides with the work of Kara and Öğünç (2005), in which Granger causality from exchange rate to inflation was detected in the period before the transition to the floating exchange rate regime. However, this relationship was observed to disappear after the transition to the floating exchange rate regime, as a result of the lack of a Granger causality relationship between reel exchange rate and inflation. 4.2. SUGGESTIONS BASED on RESULTS Findings revealing the effects of the shocks that may occur in the variables between the budget deficit with Granger causality between inflation and the budget deficit and the reel USDTRY rate have been obtained. Between 2006 and 2017, both the increase in capital inflow to developing countries with the expansion in global financial markets and the decrease in USDTRY exchange rate volatility and the steady implementation of the inflation targeting monetary policy applied in our country, especially between consumer inflation rates and the reel exchange rate. It can be shown as the reasons why the causality relationship could not be determined. It is recommended that policymakers pay attention to these results. 4.3. LIMITATIONS of the ARTICLE The study also has some limitations. The research covers the years between 2006-2017. Therefore, the results obtained only cover this period.