The Asymmetric Relationship Among Food Prices, the Exchange Rate, and Oil Prices in Turkey

This study examines the short and long-term dynamics among food prices, the exchange rate, and oil prices in Turkey between January 2003-December 2021 using the non-linear autoregressive distributed lag (NARDL) method. The empirical results from the NARDL method, which allows positive and negative decompositions of the effects, reveal the presence of a long-term cointegration relationship. While using the NARDL method in the study, the positive and negative components of oil prices and the exchange rate were seen to decompose in different way. The Hodrick-Prescott (HP; 1997) filter was used with this method to decompose the independent variables (i.e., oil prices and the exchange rate) into their positive and negative components. The study first extracted the trend component of the variables with the HP filter, then constructed the variables according to the positive and negative components regarding this trend. Thus, the NARDL model revealed the estimated food prices to be sensitive to changes in the exchange rate and oil prices and the positive and negative changes around the long-term trend to have different effects, thus revealing the presence of asymmetric effects regarding food prices. In addition, the study has concluded the positive changes regarding the long-term trend in oil prices and the exchange rate to have a greater effect on food prices compared to the negative changes. The positive changes regarding oil prices being more dominant than the negative changes is an expected situation in oil-dependent countries such as Turkey. Other additional reasons why the positive shocks in the exchange rate are higher than the negative shocks result from the inputs used in food production processes (including oil) being obtained through imports and from foreign exchange income being dependent on tourism revenues and short-term foreign direct capital rather than high technology product exports . In general, the effects from positive shocks on the explanatory variables used in the analysis can be said to have deeper impacts on food prices in Turkey compared to the negative shocks.