Economic Uncertainty, Inflation Surprises and Equity-Market Risk-On Conditions in Türkiye

Abstract

This study analyzed the change in the dynamic links among country-specific economic uncertainty (country-specific uncertainty), model-based inflation surprises, and equity-market risk-on conditions in Türkiye. The NARDL model was used to analyse the monthly data between March 2013 and December 2024. Equity-market risk-on circumstances were the monthly growth figures of broad Turkish share prices spread through the OECD/FRED. Economic uncertainty was approximated by the Türkiye Economic Country-Specific Uncertainty Index for economic uncertainty and inflation surprises were generated as residuals of an autoregressive model of monthly CPI inflation. The uncertainty and inflation surprises' positive and negative movements were also decomposed to partial sums to determine possible short and long run asymmetries of uncertainty and inflation surprise. The results showed a robust and statistically significant correction pattern (approximately 74.4% of short-run disequilibrium recovered in 1 month) in the short run. A stable long-run relationship was supported by the joint level-term test. Long-run uncertainty coefficients were negative and the positive short-run inflation-surprise component was statistically significant. Wald tests however did not reject short-run symmetry and long-run symmetry. This study therefore presents evidence of dynamic association, adjustment speed and symmetry properties, instead of a demonstration of an established asymmetry.