Dynamic spillover analysis of international and Turkish food prices

Abstract

AbstractThis study analyses the dynamic spillover relationship between international and Turkish food prices by employing Markov Switching Regression (MSR) and Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroscedasticity (DCC‐GARCH) models to monthly data from 2003 to 2019. We also investigate the factors that cause a price difference between Turkish and international food markets by employing alternative econometric models, including Autoregressive Distributed Lag (ARDL), Fully Modified OLS (FMOLS), Dynamic OLS (DOLS) and MSR. We find structural shifts in the dynamics of the international/domestic food price relationship, and the relationship varies across the low and high volatility regimes. We also find that the exchange rate significantly affects the growing difference between Turkish and international food prices, while oil prices reduce that difference. Our results point out essential policy recommendations for developing food policies and ensuring sustainability in prices.