OIL PRICES AND TRADE IN TURKEY: A WAVELET CONTINUOUS TRANSFORM ANALYSIS

Nuray Terzi () and Sadullah Celik ()
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Nuray Terzi: Marmara University, Turkey
Sadullah Celik: Marmara University, Turkey

Eurasian Journal of Economics and Finance, 2016, vol. 4, issue 4, 29-41

Abstract: Since the beginning of the Great Recession, the conceptuality of the economic literature has been going through an unprecedented change at a rate which is mind-boggling. The flaws of the DSGE model that let to its breakdown, the existence of a zero lower bound for a period that is much longer than expected, the important and intriguing models that the literature on nowcasting offers, heterodox beliefs of yesterday that became orthodox notions such as the non-linearity of all variables used in empirical analysis as well as the role of measurement errors in these variables as the main cause of continuous fluctuations have all been at the forefront of this wave of new research in economics to build robust (or at least not flawed) models that are somewhat capable of explaining the nature of human behavior that has been shaped by the global technological advances which hardly has been a part of the past conventional economic analysis. Moreover, questions surrounding the models used to employ expectation formation of individuals and the shifting focus to company culture rather than just a representative agent have added additional fuel to a debate which seems to be only at its infant stages. Nonetheless, there are still important topics which are much simpler to tackle with that are left unattended by the literature among all this chaos that dominates the research and the empirical applications. One of them is the literature between the relation of oil prices and trade deficit. This paper studies the oil price-trade deficit relationship in the emerging market of Turkey, employing one of the recent unconventional methods that take into account the non-linear nature of the variables, the wavelet methodology. Our findings show that these two variables are definitely positively related and oil prices are leading the trade deficit, especially during the periods of turmoil and fluctuations.

Keywords: Global Trade; Oil Prices; Emerging Market; Financial Crisis; Wavelet Analysis (search for similar items in EconPapers)
Date: 2016
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