Second-round effects of food priceson core inflation in Turkey
DOI:
https://doi.org/10.18559/ebr.2024.4.1485Keywords:
second-round effect, Bayesian Structural VAR, core inflation, food pricesAbstract
Turkey has recently experienced persistently high food inflation, among the highest in emerging markets, with food accounting for a significant proportion of consumer expenditures. This study investigates the second-round effects of food price shocks on core inflation using monthly data from January 2013 to June 2024 through a Bayesian Structural Vector Autoregressive (SBVAR) model. Incorporating domestic and international macroeconomic variables, the model identifies second-round effects by imposing theory-based constraints and leveraging Bayesian methods. Results reveal that core inflation reacts strongly to food price shocks, with rising food prices worsening inflation expectations and amplifying second-round effects on overall inflation. Historical decomposition reveals a more persistent impact of food price shocks on core inflation and expectations post-COVID-19. These findings underscore the importance of closely monitoring food price dynamics to safeguard price stability in Turkey, highlighting their critical role in shaping inflationary pressures.
JEL Classification
Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes • State Space Models (C32)
Price Level • Inflation • Deflation (E31)
General (E50)
General (Q10)
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