Does Inflation Instability Cause Environmental Pollution in Türkiye? Evidence from the Fourier-Wavelet Causality Test

Abstract

The Turkish economy has faced many macroeconomic problems in terms of GDP stability, inflation stability, growth rate, and exchange rate. This situation has become even more noticeable in recent times, especially with the negative effects of the Covid 19 epidemic and the Russia-Ukraine war. Thus, inflation in Turkiye has increased and has a more unstable outlook. However, environmental problems have also increased. In light of this information, the aim of the study is to examine the causality relationship between inflation instability and environmental pollution for the period 1990-2021 by considering growth, energy consumption, and financial development as control variables in Turkiye. For this purpose, firstly, the series was subjected to wavelet transform. Afterwards, the transformed series were analyzed with the Fourier TY and Fractional Fourier TY causality tests as short, medium, and long term. Findings from the Fourier causality test show that inflation instability promotes environmental pollution in the short, medium, and long term. According to the Fractional Fourier causality test, which I used to test whether the shocks are permanent, there is persistence from inflation instability to environmental pollution only in the medium term. This study is the first to examine the subject in the case of Türkiye.