Oil Prices and Inflation: Empirical Evidence from Turkey

This paper examines the impacts of global oil prices on the current account, investment, growth rate, and inflation in Turkey by using data for 1998:1-2018:1 period and both ARDL and NARDL approaches to cointegration. Our ARDL results clearly show that oil prices have a significant influence on the current account, consistent with expectations. However, it seems that changes in oil prices do not exert a significant influence on the investment and growth rate. Moreover, we also find a robust effect of current account balance (growth rate) on the growth rate (current account balance). We should note that inflation has a negative influence on the growth rate. Additionally, there does not exist any cointegration among our variables when the inflation rate is used as the dependent variable. Using NARDL approach, we report that negative and positive changes in oil prices have a significant effect on the current account balance in only short run. Although it seems that a positive (negative) shock in oil prices ends up lowering the investment (growth) in the short run, our results do not lend any evidence for asymmetric effects of oil prices on investment and growth. Other results obtained from NARDL are very similar to that of our ARDL estimations.

Energy, 2021

The effects of the oil price and oil price volatility on inflation in Turkey were analyzed via a structural vector autoregression (SVAR) model, using monthly data covering the period between March 1988 and August 2019. The result of variance decomposition indicates that the effects of the oil price and oil price volatility on inflation were limited in the early months but increased over the subsequent months. The labor cost indicates the same e its effect on inflation was limited in the early months but became more significant later. The exchange rate constituted the largest source of changes in inflation, and its impact only slightly decreased in the latter part of the period. According to the result of impulse response functions, the responses of the oil price and exchange rate to inflation were significant in the early months. The response of inflation to labor cost became significant after a few months. The result of this research indicates that following stable economic policies, considering both monetary policy and fiscal policy, provides important dynamics for the control of inflation. Nevertheless, the oil price is an external factor for which alternative ways need to be found in order to reduce its inflationary effect.

Journal of Emerging Economies and Policy, 2023

Understanding the effect of oil price swings on macroeconomic performance is decisive in the analysis for policy makers. This need has made it necessary to conduct sophisticated investigations for researchers since the first OPEC embargo. Analyses that focused on the traditional linear relationship between oil price changes and macroeconomic performance were followed by nonlinear and asymmetrical analyses, as well as ARDL methods, both in developed and developing countries in recent years. To that end, this study aims to investigate the existence of a long-run and short-run relationship between oil prices and economic growth, proxied by industrial production index, consumer price index, and real exchange rates applying ARDL cointegration analysis to monthly data for the 2001:07 and 2023:05 period in Turkey. Results of our empirical model show that industrial production is positively related to oil prices between 2001:07 and 2017:08. However, the relationship between real oil prices and the industraial production index shifts a negative correlation from 2017:09 to 2023:05.

2016

The focus of the paper is on the relationship between oil price and macroeconomic variables in the context of Turkey's economy. Macroeconomic variables used in this research are Gross Domestic Product (GDP), Consumer Price Index (CPI), Crude Oil (CROIL), FOREX and Foreign Reserves (FR). The standard time series techniques are applied for the analysis. Our findings based on the above techniques tend to suggest that the FOREX (USD/TL) is the most leading variable followed by GDP and oil price. and does have a significant impact on Turkey's economy. It appears that the oil price follows the exchange rate in that when the American dollar appreciates, the oil price in local currency would go up as the oil price is denominated in US$.

2010

Oil is an important input in the economy because it is used in the production of most goods, which is why when oil prices change the price of production of goods change. For this reason, the price of goods changes when oil prices change, inflation fluctuates with oil prices. This paper focuses on the long-term relationship between oil prices and inflation from 1986-2014 in six of the G-7 countries. To conduct this analysis, the Augmented Dickey-Fuller test was used for finding if the data is nonstationary and the Box-Cox Transformation method was used to make the data stationary. When the data was completely stationary, the Johansen Cointegration Test was used to find a long-term relationship between oil prices and inflation. A linear regression was then used to determine the direction, strength, and rate of change of the relationship. This paper hypothesizes that there is a long-term relationship between oil prices and inflation and that relationship is positive with a rate of a 2.7% decrease in oil prices for every 50% decrease in inflation. The analysis found a cointegrating, significant, positive relationship between oil prices and inflation with a rate of a 32.2% decrease in inflation for a one percent decrease in oil prices, thus proving the hypothesis of the paper that a long-term, positive, significant relationship between oil prices and inflation exists and the rate of change of the relationship is different from the one hypothesized.

Mostly national economies need petroleum which is the basic weighted input of the energy day by day. The general price level and production are influenced as a result of the fact that changes in petroleum prices have an impact on input prices. At the same time, fluctuations in the real exchange rate have an important effect on national economies. The aim of this study is to analyze the relationships between economic growth and real crude oil prices and economic growth and real exchange rate and to compare out-of sample forecasting performances of several models. In this context, we use the Gregory and Hansen cointegration method which allows a structural break in the relationship during the period between 1984:1 and 2010:4. Consequently, we find a negative relationship between the real crude oil price and economic growth also negative relationship between the real exchange rate and economic growth in Turkey. We use cointegration equations to establish error correction models, and we obtain forecasts to find which model can characterize of the data better. It is seen that there is a difference between models in terms of out-of sample forecasting performances.

International Journal of Energy Economics and Policy

This paper investigates the relationship between inflation, oil prices and exchange rate in Azerbaijan using the vector error correction model (VECM) to the data ranging from 1995 to 2017. The results from cointegration method confirm the existence of a long-run relationship among the variables. Moreover, estimation results of VECM show that the oil prices and exchange rate have positive and statistically significant impact on inflation in the long-run. This implies that 1% increase in oil prices and exchange rate increases inflation by 0.58% and 1.81%, respectively. The results of the study also reveal that inflation is observed during the periods of both high and low oil prices, and the exchange rate acts as the transmission channel from oil prices to inflation.

Resources Policy, 2020

Oil and gas are the most important inputs that countries use in their production process. For this reason, changes in oil-gas prices affect economic growth, which is the most important macroeconomic performance indicator. This study aims to investigate whether the relations between the oil-gas prices index and economic growth are permanent in Turkey, covering the period 1998Q1-2019Q4. For this purpose, the relationships between variables are first examined by Granger and Toda-Yamamoto causality tests with structural breaks. Then, we analyze whether the relationships between them are permanent using frequency domain causality tests based on these two tests. There is insignificant causality relationship between the variables according to Granger and the Frequency Domain Causality Test results based on this test. However, according to the results of the Toda-Yamamoto causality test with a structural break, there is a causality relationship from oil-gas prices to economic growth. According to the results of the Frequency Domain Causality Test based on this test, the permanent effect of oil-gas prices on economic growth is approximately five years.

International Conference on Eurasian Economies

In developing countries such as Turkey, the current account deficit, occuring due to the lack of national savings, is considered to be one of the determinants of economic crisis. At the same time owing to Turkey is dependent on foreign countries for energy resources, current account deficit is highly sensitive to fluctuations in the prices of these resources. This paper, investigates the causal relationship between international oil prices and current account deficit for Turkey using Johansen cointegration and causality tests. The empirical findings show that there is a relationship between two variables in the long term.

2016

Inflation plays vibrant role in economic stability and is considered to be an integral component of sound macroeconomic policies. Consumer prices are very much linked with the oil prices. A change in oil prices is assumed to be passing through to other goods prices directly or indirectly. The main objective of this study is to investigate long-run passthrough of world oil prices to domestic inflation in Pakistan using monthly data from January 2000 to December 2014. The standard Augmented Dickey-Fuller (ADF) unit root test is applied to test the order of integration of selected variables. The Autoregressive Distributed Lag (ARDL) bounds testing approach is applied to investigate long-run passthrough of world oil prices to domestic inflation in Pakistan in the presence of control variable, i.e. exchange rate. The results of the study clearly explain that in the long-run international oil prices and exchange rate significantly affect the inflation rate in Pakistan. Furthermore, oil pr...

Energy Studies Review, 2010

The aim of this paper is to examine the long run relationship between the world oil price, economic growth demand, and inflation in the developing country of Tunisia, by means of annual data base , univariate and multivariate tests of structural breaks, and cointegration analysis with multiple structural changes. Our empirical results indicate that by positively impacting the price level, oil price negatively impacts real output. The results also indicate that in Tunisia the monetary policy responds to a surge in the oil price in order to reduce or sustain any growth consequences. The ensuing higher inflation however prompts a subsequent tightening of monetary policy leading to a further decline in output. In addition, output does not revert quickly to its initial level after an oil price shock, but declines over an extended period.

Perspectives on Modern Economy, 2020

Technological and Economic Development of Economy, Vol. 23(4): 567–588. (ISI Web of Science – Social Sciences Citation Index® & Journal Citation Reports/Social Sciences Edition) (Impact factor 3.244), 2017

This research is an attempt to framework the applied strides to evaluate the long run relationship among commonly used inflation proxies induces such as, wholesale price index (WPI) and consumer price index (CPI), and crude oil price (COP) with KSE100 index returns. In this research we used monthly data for the time period from July 1995 to June 2016, and thus, in this way total 252 observations have been considered. Time series have been made stationary by applying ADF and PP tests at first difference. Johansen multivariate cointegration approach was used to test the long-term association amongst the considered macroeconomic variables. The results indicated that CPI and COP significantly affect KSE100 index returns that indicated CPI along with COP have foreseen power to impact KSE100 index. In contrary, the results of WPI and COP do not have long run relationship with KSE100 index in case of Pakistani economy. Results of variance decomposition exhibited that the index of LKSE100 w...

Research Papers in Economics, 2017

The purpose of this study is to investigate the Granger-causal relationship between oil prices, exchange rates and inflation rates using Turkey as a case study. Revealing this relationship will give us a roadmap to cure fragile Turkish economy. Standard time-series approaches are used to investigate this relation. Our empirical findings tend to indicate that there is a long run relationship between these variables and that the CPI appears to be the variable leading exchange rate and oil prices. The results are plausible and have strong policy implications.