Abstract
This article examines the relationship between crude oil and fuel prices in Turkey by using monthly data covering the period January 1987 and October 2013. Asymmetric cointegration tests and regime-dependent responses and variance decompositions derived from the TVAR models confirm the asymmetry in the price adjustment process: Diesel and gasoline prices respond more aggressively to oil price increases than to decreases. Responses of inflation to the change in oil and fuel prices also corroborate the existence of asymmetry in the transmission channel. The results further indicate that exchange rate movements are more important than the change in crude oil prices in the explanation of asymmetric price transmission mechanism.
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