**Author details**

Within the scope of the study, the model structure is examined as a dynamic conditional correlation model to determine the effect of inflation uncertainty on economic variables. For this reason, the volatilities of the involved variables are restricted within the DCC framework. The DCC model established in the study states that there are unstable interactions of the series concerned with conditional correlation and that this correlation affects the correlations with a one lag-period. The DCC model estimation results are shown in **Table 4**. According to the result of the multivariate Q statistic in **Table 4**, no residuals were found to be serially correlated, and the ARCH effect was no more observed in the model. It is found that there is no autocorrelation problem when considering the autocorrelation function of residuals and its squares. When these results are taken into consideration, the effect of uncertainty in the inflation can be evaluated using the DCC model. The DCC model provides more precisely the dynamic structure of

The dummy variable used for inflation targeting was found to be statistically insignificant for exchange rate changes, while statistically significant for inflation, output growth, interest rate change, governmet expenditure and tax revenues. This result indicates the effect of inflation uncertainty on selected variables differs pre-2003 and post-2003 periods. In other words, the effects of inflation uncertainty on real and nominal economic indicators are not the same in high and low inflationary periods. Inflation uncertainty had a positive and statistically significant effect on inflation, a positive and statistically significant effect on output gowth, a positive and statistically insignificant effect on exchange rate change, a negative and statistically significant effect on interest rate change, a positive and statistically significant effect on government expenditures and negative and statistically significant effect on tax revenues pre-2003 period. In the post-2003, inflation uncertainty affects inflation positively and statistically, output growth negatively and statistically significant, exchange rate change positively and statistically insignificant, interest rate change positively and statistically significant, government expenditures negatively and statistically significant, and tax revenues

As unexpected inflation increases with rising inflation uncertainty, the more inflation uncertainty increases inflation for the pre-2003 and post-2003. It is noteworthy that increases in the period after 2003 are less than the previous period. In the period before 2003, the more inflation uncertainty is an increasing effect on economic growth. In this period, as consumption expenditures were made for saving, the increase in inflation uncertainty has led to a shift in commodity markets. Since consumption expenditures are not made for saving, more inflation uncertainty makes the reducing effect on economic

Inflation uncertainty increases domestic prices, and so nominal exchange rate is also increased for both of the periods. While an exchange rate regime system was based on the "devaluation as much as inflation" idea in the period before 2003 (excluding the period between December 1999 and February 2001), flexible exchange rate system was implemented under implicit and explicit inflation-targeting regime in the post-2003 period. Due to the fact that the adequate

the correlation between inflation uncertainty and macroeconomic variables.

positively and statistically significant.

246 Financial Management from an Emerging Market Perspective

**4. Findings and remarks**

growth in the post-2003 period.

Mehmet Kenan Terzioğlu

Address all correspondence to: kenanterzioglu@trakya.edu.tr

Econometrics Department, Faculty of Economics & Administrative Sciences, Trakya University, Edirne, Turkey
