Economic Policy Uncertainty, Unexpected Inflation Developments, and Risk-on Conditions in the Turkish Equity Market: Evidence From a Nardl Approach

July 28, 2026PressacademiaOpen Access

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Key Points

This study explores how economic uncertainty and unexpected inflation influence the Turkish equity market dynamics.
Utilized nonlinear autoregressive distributed lag (NARDL) approach with monthly data from 2013M03 to 2024M12.
Economic uncertainty measured using the Türkiye Economic Country-Specific Uncertainty index and inflation constructed from AR(1) process residuals.
Analyzed asymmetries in short-run and long-run dynamics, employing econometric techniques including unit-root tests and bounds-testing for cointegration.
Approximately 74.4% of short-run disequilibrium corrected within one month, indicating a strong error-correction mechanism.
Long-run coefficients show negative relationship of uncertainty with market-implied risk-on behavior (F = 21.920, p < 0.001).
Positive inflation surprises significantly boost equity-market risk-on conditions in the short run, as investors shift towards equities.

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Examines asymmetric impact of economic uncertainty and inflation on Turkish equity markets, indicating significant relationships.

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TUTKU ÜNKARACALAR (2026) studied this question.

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