MAJOR DETERMINANTS OF FOOD PRICE VOLATILITY IN TURKEY: INFLATION SURGE AFTERMATH OF 2016

Abstract

Purpose- Food price index is a crucial indicator for the stability of overall economic conditions in emerging markets since it has a considerable weight in regular spending of households. In the last decade, Turkey experienced higher food price inflation compared to consumer price index. In this context our main purpose is to provide useful insight for policymakers and governors to manage food price inflation. Methodology- The vector autoregressive (VAR) approach is one of the most widely applied forms of multiple time series approaches. This approach describes the dependency and interdependency of normalized data in time. This paper undertakes the analysis of volatility and volatility spillover between Turkey Food Price Index (Turkey), Dollar-TL exchange rate (USDTRY), and Turkish Food Price Index (World). The monthly data set covers the period 1 January 2000–31 December 2020. We utilized VECM-VECH models by incorporating this data set to analyze food price inflation fluctuations in Turkey. Findings- The results indicate that the volatility spillover effect between Turkish food price index and world food price index is more significant compared to the return spillover effect. Also, our results indicate a significant volatility spillover effect between Turkish food price index, exchange rates and world food price index exist in the short run while the effect vanishes in the long run. However, in the long run the main indicator for Turkish food prices index is Production Price Index of Agricultural Products after 2016 which is the milestone for the food price index hike. Conclusion- Food-inflation, the change in exchange rate and recent global food commodity price surge have significant and persistent impact on the level and the volatility of inflation in Turkey in this context, It is crucial to control food price inflation by controlling market pricing behavior.

Keywords

• Dynamic correlation
• spillover
• food prices
• agriculture
• inflation

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