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Second-round effects of food prices on core inflation in Turkey

Author

Listed:
  • Türken Fatma

    (Institute of Social Sciences, Pamukkale University)

  • Yildirim Mustafa Ozan

    (Department of Economics, Pamukkale University, Kınıklı Campus, Denizli, Turkey)

Abstract

Turkey has recently experienced persistently high food inflation, among the highest in emerging markets, with food accounting for a significant proportion of consumer expenditures. This study investigates the second-round effects of food price shocks on core inflation using monthly data from January 2013 to June 2024 through a Bayesian Structural Vector Autoregressive (SBVAR) model. Incorporating domestic and international macroeconomic variables, the model identifies second-round effects by imposing theory-based constraints and leveraging Bayesian methods. Results reveal that core inflation reacts strongly to food price shocks, with rising food prices worsening inflation expectations and amplifying second-round effects on overall inflation. Historical decomposition reveals a more persistent impact of food price shocks on core inflation and expectations post-COVID-19. These findings underscore the importance of closely monitoring food price dynamics to safeguard price stability in Turkey, highlighting their critical role in shaping inflationary pressures.

Suggested Citation

  • Türken Fatma & Yildirim Mustafa Ozan, 2024. "Second-round effects of food prices on core inflation in Turkey," Economics and Business Review, Sciendo, vol. 10(4), pages 32-55.
    • Handle: RePEc:vrs:ecobur:v:10:y:2024:i:4:p:32-55:n:1004
    DOI: 10.18559/ebr.2024.4.1485
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    More about this item

    Keywords

    food prices; core inflation; second-round effects; Bayesian Structural VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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