See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/346649733

The Determinants of Food Inflation in Turkey: Fourier Engle-Granger

Cointegration Test

Conference Paper · November 2020

CITATIONS READS

0 120

2 authors:

Mustafa Kırca Şerif Canbay

Ordu Üniversitesi Duzce University
79 PUBLICATIONS   208 CITATIONS    63 PUBLICATIONS   182 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Düzce Economics Journal View project

All content following this page was uploaded by Mustafa Kırca on 25 April 2021.

The user has requested enhancement of the downloaded file.

 THE DETERMINANTS OF FOOD INFLATION IN TURKEY: FOURIER
ENGLE-GRANGER COINTEGRATION TEST

Mustafa KIRCA
Düzce University, Akçakoca Bey Faculty of Political Sciences,
Deparment of Economics
mustafakirca52@gmail.com

ġerif CANBAY
Düzce University, Akçakoca Bey Faculty of Political Sciences,
Deparment of Economics
canbay.serif@gmail.com

The fact that food prices in the world and in Turkey tend to increase continuously
draws eyes to food prices. The reasons for the increase in food prices are an important
research topic. Therefore, this study aims to find out the effects of consumer interest
rates, real effective exchange rate index, and food production index on food prices
index in Turkey. For this purpose, monthly data for the period 2008M04-2020M 08 are
used. The Fourier Engle-Granger (FEG) cointegration test is used to determine the
significant effects of consumer interest rates, real effective exchange rate index, and
food production index on the food price index over the long term. According to the
FEG cointegration test results, it is seen that the three independent variables have a
significant effect on the long-term food price index. After the determination of the
long-term cointegration relationship, long-term cointegration coefficients are estimated
by Fully-Modified Ordinary Least Square (FMOLS), Dynamic Ordinary Least Square
(DOLS), and Canonical Cointegrating Regression (CCR) estimators. When the slope
coefficients obtained from the cointegration coefficient estimators are close to each,
this indicates that the results are consistent. The 1% increase in the food production
index in the long term decreases the food prices index by 0.39% and 0.33%. A 1%
increase in the real exchange rate index decreases the food price index by 0.26% to
0.25%. However, consumer interest rates alone do not have a significant effect on the
long term food price index. After estimating the long-term coefficients, short and long
term Granger causality relationships are determined by the error correction model using
the residuals obtained from FMOLS estimation. In the established error correction
model, it is seen that the coefficient of the variable for the first lag of the residual is -
0.20, and it is statistically significant. This also means that the error correction
mechanism runs. Moreover, the result of the Wald test applied to the coefficient of the
variable of the first lag of the residual shows that the independent variables are the
Granger causality of the food price index in the long term. When the short-term
coefficients of independent variables are examined, it is found that the 1% increase in
the food production index decreases the food prices index by 0.16%, and the real
98
effective exchange rate decreases the food prices index by 0.11%. According to the
results of the Wald test applied to short-term coefficients, there is a significant causality
relationship from the real effective exchange rate index and the food production index
to the food price index in the short term. As a result of these analyses, it is suggested
that the food production index and the real effective exchange rate are important factors
in determining the food prices. In this context, the food production index reflects the
food supply. It is possible to reduce food prices with increases in the supply of food
production. For this reason, economic policy-makers should develop policies that will
increase the supply of food production. As is known, increases in the real effective
exchange rate mean an increase in the value of the Turkish Lira. The depreciation in
value of the Turkish Lira increases food prices, especially with the increase in food
imports and the increase in inputs used for food production. For this reason, it is
important to increase domestic production first and to maintain exchange rate stability.
These findings demonstrate the importance of both fiscal and monetary policies in food
price inflation.

99
View publication stats