Article

 

Changes in fuel oil prices in Turkey: An estimation of the inflation effect using VAR analysis (p.11-21)

by

Birol Akgûl, Erciyes University, Kayseri, Turkey

Tuncay Çelik, Erciyes University, Kayseri, Turkey

Keywords : Oil prices, inflation, Turkish economy, time series, Error Correction Model

JEL classification : C22, E31, Q43

Abstract

In the past, the Turkish economy went through a long period of hyperinflation. In recent years, inflation has fallen to 8-10% due to the government’s “price stability” policy. In the last decade the gradual rise in global crude oil prices has increased expectations of a possible inflationary effect in Turkey which is an oil importer. In this study, the relationship between the consumer price index and the fuel oil price index in Turkey was examined in the time interval monthly data of 2005-2010 using the Vector Error Correction Model. Study results revealed that a 1% increase in fuel oil prices caused the consumer price index to rise by 1.26% with an approximate one year lag. Moreover, the change in fuel oil prices was found to be the one-way Granger cause for changes in the consumer price index.