Volume VII, Issue 8(22), Winter 2016 1983 Inflation Threshold Effect on Economic Growth in Turkey 1 Ömer ESEN Muş Alparslan University Muş, Turkey o.esen@alparslan.edu.tr Celil AYDIN Muş Alparslan University Muş, Turkey celil.aydin@atauni.edu.tr Recai AYDIN Social Sciences University of Ankara, Ankara,Turkey raydin77027@yahoo.com Suggested Citation: Esen Ömer, Aydin Celil, and Aydin Recai (2016). Inflation Threshold Effect on Economic Growth in Turkey, Journal of Advanced Research in Law and Economics, (Volume VII, Winter), 8(22): 1983 – 1993, DOI: 10.14505/jarle.v7.8(22).09. Available from: http://journals.aserspublishing.eu/jarle/issue/archive. Article’s History: Received September, 2016; Revised October, 2016; Accepted November, 2016. 2016. ASERS Publishing. All rights reserved. DOI: https://doi.org/10.14505/jarle.v7.8(22).09 Abstract: In this study, the role of inflation threshold effect on economic growth has been investigated for Turkey in the 2002:Q1 – 2015:Q1 period. At the first stage, inflation threshold value has been detected. After that, inflation- economic growth relation has been examined using threshold autoregressive (TAR) model. Results indicate that there is a nonlinear relationship between inflation and growth rate; the threshold for the influence of inflation on economic growth is 8.89%; and an inflation rate above this threshold has a negative influence on economic growth while an inflation rate below this threshold has a positive influence on economic growth. In this regard, it is important to achieve sustainable growth, which plays a crucial role in increasing the efficiency of implemented monetary policies and assuring stability. Therefore, political and economic decision-makers should not ignore the concept of threshold within the scope of monetary policy while determining the target inflation rate in their efforts to deal with inflation. Keywords: inflation threshold, economic growth, inflation target, threshold autoregressive model. JEL Classification: E31, F43, O47. Introduction The primary objective of macroeconomic policies is to ensure a sustainable growth. A sound sustainable growth of an economy depends on its structural characteristics before all. In this regard, a steady and sustainable growth process in a country depends on the quality of macroeconomic structure that does not harm the level of savings, production, and investments (i.e. consumption decisions) and thus growth. The prerequisite for making economic growth steady and strong (i.e. having a sustainable growth process) is creating a sound 1 A preliminary version of this paper was presented at the 2nd Sarajevo International Conference of Social Sciences held in Sarajevo, Bosnia and Herzegovina, May 17-20, 2016