Asymmetric Effect of Oil Price and Exchange Rate on Food Prices: The Case of Turkey

Article Information
Journal: Business and Economics Research Journal
Title of Article: Asymmetric Effect of Oil Price and Exchange Rate on Food Prices: The Case of Turkey
Author(s): Cem Gokce
Volume: 12
Number: 3
Year: 2021
Page: 599-611
ISSN: 2619-9491
DOI Number: 10.20409/berj.2021.340
Abstract
One of the obstacles to economic stability is high inflation. Food inflation can be considered among the determining factors of inflation. In this context, the study aims to examine the effect of oil prices and exchange rates on food prices. In the study, NARDL (Non-Linear Autoregressive Distributed Lag) method was applied to predict that oil prices and exchange rates may have an asymmetric effect on food prices. Monthly data from January 2010 to December 2019 were used in the study. The main results achieved were realized within the framework of expectations. The results show that oil prices and exchange rates are in an asymmetrical relationship with food prices in the long run. In the short term, an asymmetrical relationship was not detected. Also, when the long-term coefficients are analyzed, it is seen that positive changes in oil prices and exchange rates are statistically significant. Positive changes in oil price and exchange rate affect the dependent variable in the same direction. If oil prices increase by 1 U.S. Dollar, the food price index increases by 0.30 units, and when the U.S. Dollar rate increases by 1 TL (Turkish Lira), the food price index increases by 16.6 units. As a policy recommendation within the framework of these results, precautions should be taken to reduce the pass-through of positive shocks in oil prices and exchange rates to food prices.

Keywords: Oil Prices, Exchange Rates, Food Prices, NARDL Model, Asymmetry

JEL Classification: E31, Q11, Q31, Q43

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