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The Empirical Role of Real Crude Oil Price and Real Exchange Rate on Economic Growth: The Case of Turkey

Author

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  • Emrah GULAY

    (Dokuz Eylul Universitesi)

  • Mehmet Vedat PAZARLIOGLU

    (Dokuz Eylul Universitesi)

Abstract

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.

Suggested Citation

  • Emrah GULAY & Mehmet Vedat PAZARLIOGLU, 2016. "The Empirical Role of Real Crude Oil Price and Real Exchange Rate on Economic Growth: The Case of Turkey," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 16(4), pages 627-639.
    • Handle: RePEc:ege:journl:v:16:2016:i:4:p:627-639
    DOI: 10.21121/eab.2016119953
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