Relationship Between the Prices of Grains, Crude Oil and Real Effective Exchange Rates: Evidence from Fourier Toda-Yamamoto Causality Test

Abstract

This study focuses on grain prices and their determinants in the case of Turkiye. The sustainability of grain prices matters for Turkiye since it is a significant grains importer due to the nutrition habits of its population and its significant processed grain products sector. Therefore, it is vital to portray the relationship between grain prices and their determinants. We employed a detailed causality analysis between wheat, durum wheat, corn, rye, rice, and barley prices and their significant determinants: crude oil and reel effective exchange rates (REER) between January 2003 and December 2020. We first examined unit root properties of the variables with traditional tests and more advanced Fourier ADF and Lagrange Multiplier (LM) tests; then continued with the Fourier Toda-Yamamoto (TY) causality test. The long-term causality results suggest a unidirectional causality from REER to crude oil, wheat, corn, and rye prices; from wheat, barley, and rice prices to Brent oil prices; an ongoing bidirectional causality between REER and barley, rice, and durum wheat prices.