Second-round effects of food prices on core inflation in Turkey

Türken Fatma () and Yildirim Mustafa Ozan ()
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Türken Fatma: Institute of Social Sciences, Pamukkale University
Yildirim Mustafa Ozan: Department of Economics, Pamukkale University, Kınıklı Campus, Denizli, Turkey

Economics and Business Review, 2024, vol. 10, issue 4, 32-55

Abstract: 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.

Keywords: food prices; core inflation; second-round effects; Bayesian Structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E31 E50 Q10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecobur:v:10:y:2024:i:4:p:32-55:n:1004

DOI: 10.18559/ebr.2024.4.1485

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