EXTENDED SUMMARY

This study investigates the long-term relationship, dynamic interactions, and structural characteristics between inflation and unemployment in the Turkish economy over the period 2000–2024. The motivation stems from the fundamental macroeconomic importance of these two variables, which are central to the formulation and implementation of sound economic policies. Understanding the inflation-unemployment nexus is particularly critical for emerging economies like Türkiye, which have undergone significant structural transformations, macroeconomic shocks, and policy changes in recent decades.

To explore the dynamic interplay between inflation and unemployment, the study employs the Vector Autoregression (VAR) methodology, allowing for the examination of temporal causality and impulse response dynamics without imposing restrictive a priori assumptions about the direction of causality. In addition, the Johansen cointegration test is applied to determine whether a long-term equilibrium relationship exists between the two variables.

Empirical findings confirm the presence of a long-term cointegration relationship, suggesting that inflation and unemployment are not independent in the long run and tend to move together over time. This outcome supports the hypothesis that inflation and unemployment are structurally interlinked in the Turkish economy. Moreover, both Granger causality and Dumitrescu-Hurlin panel causality tests reveal statistically significant unidirectional and bidirectional causal relationships between inflation and unemployment, emphasizing the complexity and asymmetry of their interaction.

Specifically, the analysis shows that inflation exerts a significant influence on unemployment through its lagged values, implying that price fluctuations in previous periods can impact current labor market outcomes. This result underscores the critical role of inflation expectations and monetary transmission mechanisms in shaping employment dynamics.

From a policy perspective, these findings highlight the need for a coherent and balanced macroeconomic policy framework. While price stability remains a central objective of monetary policy, its potential adverse effects on employment must be acknowledged and mitigated. The study recommends that supportive labor market policies be designed to cushion the contractionary effects of tight monetary stances, particularly during disinflation periods.

Furthermore, in the fight against structural unemployment, the analysis suggests that short-term policy instruments are insufficient. Instead, long-term structural reforms that promote productive investment, increase labor market flexibility, and enhance workforce skills are necessary to achieve sustainable employment gains. These reforms should be integrated with inflation control strategies to avoid policy trade-offs and ensure inclusive economic growth.

In conclusion, the study stresses the importance of holistic policymaking that simultaneously targets price stability and labor market health. For Türkiye, aligning monetary and fiscal policy tools within a comprehensive macroeconomic strategy is imperative to fostering both economic stability and social welfare in the post-2000 era.