Due to its inconsistent GDP data with great volatility and interesting history, Turkey presents itself as a candidate for study. Recent research shows that output variability and production growth in Turkey are related. For example, the 1970s energy crisis had a negative effect on economic growth (Altinay, Karagol 2004). Changes in output in 2001 lead to conclusion that volatility is caused by crisis which occurred at this year in Turkey (Malik, Temple 2009).
This view is supported by Blackburn and Pelloni (2004) who imply that ‘the correlation between the mean and variance of output growth depends fundamentally on the impulse source of fluctuations (real shocks or nominal shocks)’. Therefore, it might support and explain causalities of this study on how and why output variability affects output growth. Furthermore, appropriate monetary policy might be applied in order to control the economic growth.
In order to decide how economic growth is caused by volatility, two countries: Turkey and Japan will be compared. Fountas’, Karanasos’ and Mendoza’s (2004) applications in the case of Japan will be used. This comparison might show how GDP’s and volatility’s relationship between developed and undeveloped country differs.
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