Abstract

The purpose of this study is to investigate the business cycle volatility of Turkish economy using the quarterly data over the period 1961:Q1 to 2018:Q4 and to determine the smoothing parameter, λ, of HP filter for annual frequency of observations. The macroeconomic variables such as import, investment and export are more volatile followed by government spending; while consumption and real GDP are less volatile. Price in Turkey is highly volatile, which is about four times as volatile as the average price volatility of South Africa, Japan and USA. Output, consumption and investment in Turkey are twice as volatile as the average volatility of South Africa, Japan and USA. Import and export are more volatile in emerging economies as compared to developed countries. The trend component of annual frequency with λ_annual=6.25 is practically identical to the trend component of the quarterly data with λ_quarterly=1600. In Turkish economy, investment, consumption, import, export, and government spending are procyclical; price and inflation are countercyclical; whereas, the share of government consumption in output is acyclical.

Key words: Business cycle, correlation, Hodrick-Prescott (HP) filters, macroeconomic variables, volatility.