Asymmetric Frequency Domain Causality Analysis between Oil Prices and Inflation: Evidence from BRICS-T Countries

Abstract

In this study, the presence of causality relation between oil price and inflation is examined for the BRICS-T (Brazil, Russia, India, China, South Africa, and Turkey) countries, which are known to have a high growth rate among global economies. These countries have an important position in the world both as a net oil exporter and as an importer. In this study, the causality relationship between the variables is examined by means of the frequency domain causality test suggested by Breitung and Candelon (2006). In addition, we employ asymmetric causality tests to determine the effect of positive and negative oil price shocks on inflation. Empirical results suggest that the causality relation between the oil price and inflation varies over the countries. The conventional Granger causality test results show that there is a causality relation from oil price to inflation in only China and South Africa. On the other hand, although positive oil price shocks are determined as Granger cause of inflation in Brazil, both positive and negative oil price shocks are Granger cause of inflation in Russia. We cannot determine any causal link between the variables in India and Turkey. Frequency domain Granger causality test results indicate that oil price is Granger cause of inflation in Russia, China, and South Africa. However, there is a causal link running from positive oil price shocks to inflation in the long-run in all countries except for India. On the other hand, negative oil price shocks are found to be Granger cause of inflation in all countries except for Brazil and Turkey.

Keywords

• Oil Prices
• Inflation
• BRICS-T
• Causality
• Frequency Domain Causality Analysis

Petrol Fiyatları ve Enflasyon Arasında Frekans Alanında Asimetrik Nedensellik Analizi: BRICS-T Ülkeleri Üzerine Bir Uygulama

Abstract

Bu çalışmada küresel ekonomiler içerisinde hızla büyüdüğü bilinen BRICS-T ülkeleri (Brezilya, Rusya, Hindistan, Çin, Güney Afrika ve Türkiye) için petrol fiyatları ile enflasyon arasındaki nedensellik ilişkisi araştırılmıştır. Söz konusu ülkeler hem net petrol ihracatçısı hem de ithalatçı olarak dünyada önemli bir konuma sahiptir. Bu çalışmada ilgili değişkenler arasındaki nedensellik ilişkisi Breitung ve Candelon (2006) tarafından önerilen frekans alanındaki nedensellik testi ile incelenmiştir. Ayrıca pozitif ve negatif petrol fiyat şoklarının enflasyon üzerindeki etkisini belirlemek amacıyla asimetrik nedensellik testi yapılmıştır. Analiz sonuçları petrol fiyatları ile enflasyon arasındaki nedensellik ilişkisinin ülkelere göre farklılaştığını göstermektedir. Geleneksel Granger nedensellik testinde petrol fiyatlarının enflasyon üzerindeki asimetrik etkisini dikkate almadığımızda, sadece Çin ve Güney Afrika için nedensellik ilişkisi tespit edilmektedir. Diğer taraftan, Brezilya’da pozitif petrol fiyat şokunun enflasyonun Granger nedeni olduğu belirlenirken, Rusya’da pozitif ve negatif petrol fiyat şokundan enflasyona yönelik nedensellik ilişkisi bulunmuştur. Hindistan ve Türkiye için ise petrol fiyatları ile enflasyon arasında herhangi bir nedensellik ilişkisi bulunamamıştır. Frekans alanında nedensellik testi sonuçlarına göre, Rusya, Çin ve Güney Afrika’da petrol fiyatlarından enflasyon oranına yönelik nedensellik ilişkisi belirlenmiştir. Bununla birlikte, Hindistan dışındaki tüm ülkeler için pozitif petrol fiyat şokları uzun dönemde enflasyonun Granger nedeni olarak bulunmuştur. Diğer taraftan, Brezilya ve Türkiye dışında tüm ülkelerde negatif petrol fiyat şoklarından enflasyona yönelik nedensellik olduğu sonucuna ulaşılmıştır.

Keywords

• Petrol Fiyatları
• Enflasyon
• BRICS-T
• Nedensellik
• Frekans Alanında Nedensellik

References

1. Ajmi, A. N., Gupta, R., Babalos, V., & Hefer, R. (2015). Oil price and consumer price nexus in South Africa revisited: a novel asymmetric causality approach, Energy Exploration & Exploitation, 33(1), 63–73.
2. Alagöz, M., Alacahan, N. D. & Akarsu, Y. (2017). Petrol fiyatlarının makro ekonomi üzerindeki etkisi-ülke karşılaştırmaları ile panel veri analizi, Sosyal ve Ekonomik Araştırmalar Dergisi, 19 (33), 144-150.
3. Albulescu, C. T., Oros, C. & Tiwari, A. K. (2017). Oil price–inflation pass-through in Romania during the inflation targeting regime, Applied Economics,49 (15), 1527-1542.
4. Alper, F. Ö. (2018). Petroleum prices, food prices and inflation relationship: findings of structural VAR analysis, Turkish Studies Economics, Finance and Politics, 13 (22), 63-74.
5. Ariketi, R., Behara, B. K. & Bhuni, U. K. (2015). Shale gas in India: opportunities and challenges, IJSR - Internatıonal Journal of Scıentıfıc Research, 4 (3), 320-325.
6. Ashley, R. A. & Randal, J. V. (2009). To difference or not to difference: a Monte Carlo investigation of inference in vector autoregression models, International Journal of Data Analysis Techniques and Strategies, 1 (3), 242-274.
7. Breitung, J. & Candelon, B. (2006). Testing for short and long-run causality: a frequency domain approach, Journal of Econometrics,132: 363–378.
8. Çatık, A. N. & Karaçuka, M. (2012). Oil pass-through to domestic prices in Turkey: does the change in inflation regime matter?, Ekonomska Istrazivanja, 25 (2), 277–296.

9. Cavalcanti, T. & Jalles, J. T. (2013). Macroeconomic effects of oil price shocks in Brazil and in the United States, Applied Energy, 104, 475-486.
10. Cavollo, M. (2008), Oil price and inflation, FRBSF Economics Letters, 31.
11. Çelik, T. & Akgül, B. (2011). Changes in fuel oil prices in Turkey: an estimation of the inflation effect using VAR analysis, Journal of Economics and Business, 14 (2), 11-21.
12. Çevik, E. İ., Atukeren, E. & Korkmaz, T. (2019). Trade openness and economic growth in Turkey: a rolling frequency domain analysis, Economies, 7 (41), 1-16.
13. Choi, S., Furceri, D., Loungani, P., Mishra, S. & Poplawski-Ribeiro, M. (2018). Oil prices and inflation dynamics: evidence from advanced and developing economies, Journal of International Money and Finance, 82, 71-96.
14. Ciner, Ç. (2011). Commodity prices and inflation: testing in the frequency domain, Research in International Business and Finance, 25, 229-237.
15. Du, L., He, Y. & Wei, C. (2010). The relationship between oil price shocks and China’s macro-economy: an empirical analysis, Energy Policy, 38 (8), 4142–4151.
16. ECB, (2010). Oil prices - their determinants and impact on Euro Area inflation and the macroeconomy, Monthly Bulletin, (August), 75–92.
17. EIA, (2015). China - International - U.S. Energy Information Administration (EIA), Erişim: 14.12.2018: https://www.eia.gov/beta/international/analysis_includes/countries_long/China/china.pdf.
18. EIA, (2018). India - International - U.S. Energy Information Administration (EIA), Erişim tarihi: 14.12.2018: https://www.eia.gov/beta/international/country.ph p?iso=IND.
19. Galarza, J. C. A., Garcia, J. C. M. & Gracia, F. P. (2016). The macroeconomic effects of oil shocks in three Latin American economies, Cuestiones Económicas, 26 (2), 145-171.
20. Geweke, J. (1982). Measurement of linear dependence and feedback between multiple time series, Journal of the American Statistical Association, 77, 304-324.
21. Ghosh, S. & Kanjilal, K (2014). Oil price shocks on Indian economy: evidence from Toda Yamamoto and Markov regime-switching VAR, Macroeconomics and Finance in Emerging Market Economies, 7 (1), 122-139.
22. Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods, Econometrica, 37, 424-438.
23. Gronwald, M. (2009). Reconsidering the macroeconomics of the oil price in Germany: testing for causality in the frequency domain, Empirical Economics, 36 (2), 441-453.
24. Hooker, M. A. (2002). Are oil shocks inflationary? asymmetric and nonlinear specifications versus changes in regime, Journal of Money, Credit and Banking, 34 (2), 540-561.
25. Hosoya, Y. (1991). The decomposition and measurement of the interdependence between second-order stationary processes, Probability Theory and Related Fields, 88, 429-444.
26. Hosoya, Y. (2001). Elimination of third-series effect and defining partial measures of causality, Journal of Time Series Analysis, 22, 537-554.
27. Ito, K. (2012). The impact of oil price volatility on the macroeconomy in Russia, The Annals of Regional Science, 48 (3), 695-702.
28. Izatov, A. (2015). The role of oil prices, the real effective exchange rate, and inflation in economic activity of Russia: an empirical investigation, Eastern European Business and Economics Journal, 1 (3), 48-70.
29. Kibritçioğlu, A. & Kibritçioğlu, B. (1999). Ham petrol ve akaryakıt ürünü fiyat artışlarının Türkiye’deki enflasyonist etkileri, Hazine Müsteşarlığı, 21, 1-73.
30. Koçak, S., Balan, F. & Albayrak, B. (2017). Türkiye ekonomisinde petrol fiyatları ve enflasyon ilişkisi: ampirik analiz, Journal of Life Economics, 4 (4), 261-273.
31. Lee, J. & Strazicich, M. (2003). Minimum lagrange multiplier unit root test with two structural breaks, The Review of Economics and Statistics, 85 (4), 1082-1089.
32. Meyer, D. F. (2018). The impact of changes in fuel prices on inflation and economic growth in South Africa. In Proceedings of the 11th International RAIS Conference on Social Sciences. Scientia Moralitas Research Institute, 65-73.
33. Nazlioglu, S., Gormus, A. & Soytas, U. (2019). Oil prices and monetary policy in emerging markets: structural shifts in causal linkages, Emerging Markets Finance and Trade, 55 (1): 105-117.
34. Niyimbanira, F. (2013). An investigation of the relationship between oil prices and inflation in South Africa, Mediterranean Journal of Social Sciences, 4 (6), 105-111.
35. Öksüzler, O. & İpek, E. (2011). Dünya petrol fiyatlarındaki değişimin büyüme ve enflasyon üzerindeki etkisi: Türkiye örneği, Zonguldak Karaelmas University Journal of Social Sciences, 7 (14), 15-34.
36. Olayungbo, D. O. (2019). Effects of global oil price on exchange rate, trade balance, and reserves in nigeria: a frequency domain causality approach, Journal of Risk and Financial Management, 12(1), 43.
37. O'neill, J. (2011). Building better global economic BRICs, Global Economics Paper, 66.
38. Özata, E. (2019). Türkiye’de petrol fiyatlarından enflasyona asimetrik ve doğrusal olmayan geçişkenlik, Optimum Ekonomi ve Yönetim Bilimleri Dergisi, 6 (1), 17-32.
39. Perron, P. (1989). The great crash, the oil price shock and the unit root hypothesis, Econometrica, 57 (6), 1361–1401.
40. Pradhan, R. P., Arvin, M. B. & Ghoshray, A. (2015). The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: evidence from the G-20 countries, International Review of Financial Analysis, 39, 84-95.
41. Qianqian, Z. (2011). The impact of international oil price fluctuation on China's economy, Energy Procedia, 5, 1360-1364.
42. Salisu, A. A., Isah, K. O., Oyewole, O. J. & Akanni, L. O. (2017). Modelling oil price-inflation nexus: the role of asymmetries, Energy, 125, 97-106.
43. Salles, A. A. & Almeida, P. H. A. (2017). The crude oil price influence on the Brazilian industrial production, Open Journal of Business and Management, 5, 401-414.
44. Sek, S. K., Teo, X. Q. & Wong, Y. N. (2015). A comparative study on the effects of oil price changes on inflation, Procedia Economics and Finance, 26, 630-636.
45. Tastan, H. (2015). Testing for spectral Granger Causality, Stata Journal, 15 (4), 1157-1166.
46. Toda, H. Y. & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes, Journal of Econometrics, 66, 225-250.
47. Wong, S. L., Chia, W. M. & Chang, Y. (2013). Energy consumption and energy in OECD: perspectives from oil prices and economic growth, Energy Policy, 62, 1581–1590.
48. Yanfeng, W. (2013). The dynamic relationships between oil prices and the Japanese economy: a frequency domain analysis, Review of Economics & Finance, 3, 57-67.
49. Yanıkkaya, H., Kaya, H. & Akgül, D. (2015). Petrol fiyatlarının enflasyona geçişkenliği değişti mi?, Central Bank Review, 15, 75-88.
50. Yao, F. & Hosoya, Y. (2000). Inference on one-way effect and evidence in Japanese macroeconomic data, Journal of Econometrics, 98, 225-255.
51. Yıldırım, D. Ç., Erdoğan, S. & Çevik, E. İ. (2018). Regime-dependent effect of crude oil price on BRICS stock markets, Emerging Markets Finance and Trade, 54, 1706-1719.
52. Zivot, E. & Andrews, D. W. K. (1992). Further evidence of great crash, the oil price shock and unit root hypothesis, Journal of Business and Economic Statistics, 10, 251-270.