The local currency oil price and food price relationship for Turkey: a dynamic correlation and time-frequency dependency analysis

Abstract

Food prices are important both socially and economically due to food's high share in the consumption basket of households. This study aims to analyse the dynamic correlation and causality relationship between local currency oil and food prices in Turkey by employing DCC-GARCH model as well as Toda-Yamamoto and Wavelet coherence causality tests using monthly data covering 2003.1-2020.1 periods. The results indicate that there is strong dynamic correlation between local currency oil and food prices over time. It is also found that there is unidirectional causality from local currency oil prices to food prices. The results underline the importance of oil prices and exchange rates to predict food prices in Turkey. Taking into consideration that oil prices can be accepted as exogenous variable, which could not be controlled by the countries alone, policies that would be adopted for the stability of exchange rates become more prominent for Turkey.