The Effect of Economic Policy Uncertainty on Food Prices: A Time-Varying Causality Analysis for Selected Countries
Veysel KaragölPhenomena such as global warming and climate change have caused food prices to increase alongside the effects from the COVID-19 pandemic. Many driving forces have led food prices to increase, such as energy costs, exchange rates, and supply and demand quantities. Economic policy uncertainty has recently been discussed as one of these possible driving forces. This study aims to investigate the relationship between economic policy uncertainty and food prices. For this purpose, it examines the causal relationships between food inflation and global economic policy uncertainty in China, England, Germany, Hungary, South Africa, Türkiye, and the United States. Symmetric causality findings point to the existence of a bidirectional causality relationship between global economic policy uncertainty and food inflation only in the United States. According to the time-varying causality analysis findings, time-varying causality relationships existgoing from global economic policy uncertainty to food inflation in all countries. According to the analysis findings, the causality relationship from economic policy uncertainty to food prices was observed to have intensified during the COVID-19. Although the potential effects of economic policy uncertainty on food prices require more evidence, policymakers are considered to be able to stabilize food prices by using effective economic policy interventions.
Ekonomik Politika Belirsizliğinin Gıda Fiyatlarına Etkisi: Seçilmiş Ülkeler İçin Zamanla Değişen Nedensellik Analizi
Veysel KaragölKüresel ısınma ve iklim değişikliği gibi olgular, son yıllarda yaşanan Covid-19 Pandemisi’nin de etkisiyle gıda fiyatlarının artmasına nedenolmuştur. Gıda fiyatlarının artmasına neden olan enerji fiyatları, döviz kuru, arz ve talep miktarları gibi birçok itici güç bulunmaktadır. Ekonomik politika belirsizliğinin de bu itici güçlerden biri olabileceği, yakın dönemde tartışılmaya başlamıştır. Bu çalışmanın amacı, ekonomik politika belirsizliği ile gıda fiyatları arasındaki ilişkiyi araştırmaktır. Bu amaç doğrultusunda çalışmada Çin, İngiltere, Almanya, Macaristan, Güney Afrika, Türkiye ve Amerika Birleşik Devletleri’nin gıda enflasyonlarıyla küresel ekonomik politika belirsizliği arasındaki nedensellik ilişkileri incelenmiştir. Simetrik nedensellik ilişkisi bulguları, küresel ekonomik politika belirsizliği ile yalnızca Amerika Birleşik Devletleri’nin gıda enflasyonu arasında iki yönlü bir nedensellik ilişkisinin varlığına işaret etmektedir. Zamanla değişen nedensellik analizi bulgularına göre, küresel ekonomik politika belirsizliğinden ülkelerin tamamındaki gıda enflasyonuna doğru zamanla değişen nedensellik ilişkileri mevcuttur.
Analiz bulgularına göre ayrıca, ekonomik politika belirsizliğinden gıda fiyatlarına doğru nedensellik ilişkisinin Covid-19 Pandemisi döneminde yoğunlaştığı gözlenmiştir. Ekonomik politika belirsizliğinin gıda fiyatları üzerindeki potansiyel etkileri daha fazla kanıta muhtaç olsa da politika yapıcıların, etkili ekonomi politikası müdahaleleriyle gıda fiyatlarında istikrarı sağlayabilecekleri düşünülmektedir.
Interest in the forces that drive food prices is increasing, as well as the effects from factors such as global warming and climate change that have become more dominant with the COVID-19 pandemic (Van Bodegom & Koopmanschap, 2020; Barrett et al., 2021; Rasul, 2021; Wahidah & Antriyandarti, 2021; Dorward & Giller, 2022). The events that accompanied the worldwide spread of the COVID-19 pandemic can also be studied to provide a real example of how uncertainty is able to severely impact the global economy. In particular, economic and political uncertainties involve oil, gold, and cryptocurrency markets and can have negative effects on the food sector (Al‐Thaqeb et al., 2022). The primary aim of this study is to investigate the effect of economic policy uncertainties on food prices. Its secondary aim is to draw attention to the increases in the number of extreme climate events and in food prices in recent years and to enrich the literature on this topic. The secondary aim of the study also forms the motivation of the study. Two main studies have investigated the direct effects of economic policy uncertainty on food prices. The first of these was Wenet al. (2021), who examined the symmetric and asymmetric relationships. The findings from their study indicated anincrease in economic policy uncertainty to cause a significant increase in food prices both in the short and long run. In addition, an asymmetric relationship was found between the variables in the short run. The other study by Kirikkaleli and Darbaz (2022) discussed the relationship food prices have with the economic policy uncertainty index, as well as with the dollar index and the energy price index. Their study’s findings revealed food prices to also increase during volatile periods of high uncertainty. Moreover, economic policy uncertainty is shown as a long-term and permanent cause of food prices. Wen et al. (2021) and Kirikkaleli and Darbaz (2022) emphasized the need to further investigate the effects of uncertainties on food prices in order to ensure stability in food prices; however, the literature on this topic is still quite sparse. Therefore, this study is thought to be able to contribute to the sparse literature by using different methods and discussing results over a country group. This study examines the relationships with food price inflation in countries using monthly data for the period of January 1997-September 2022. The following data are used for this purpose: global economic policy uncertainty and food price inflation in China, Great Britain, Germany, Hungary, the Republic of South Africa, Türkiye, and the United States. The first stage of the study uses using unit root tests to identify the stationarity levels of the variables. The second stage uses the Hacker andnHatemi-J (2006) causality test to investigate the symmetric causality relationships among the variables. The last stage applies the time-varying causality test based on the Hacker and Hatemi-J (2006) causality test while taking into account the changes in the relationships among the variables over time. The Hacker and Hatemi-J (2006) causality test examines the presence of causality regarding the overall period. Despite no causal relationship sometimes occurring over the entire period, it can occur in sub-periods. Economic and political events and structural changes in a country can affect this relationship. Therefore, using a timevarying causality test may be more reasonable (Balcılar et al., 2010; Yılancı & Bozoklu, 2014; Erdoğan et al., 2019). The symmetric causality test findings point to the presence of abidirectional causality relationship between global economic policy uncertainty and food inflation only in the United States. The time-varying causality analysis determined causality relationships among all the variables at different periods. Economic policy uncertainty affects food prices in developing countries, affecting the United States relatively longer. In addition, the causality relationship going from economic policy uncertainty to food prices was seen to have intensified in all countries during crisis periods, with economic policy uncertainty affecting food prices more strongly in periods of crisis, especially during the COVID-19 pandemic. Although economic policy uncertainty is not the single leading cause of increases in food prices, the findings from this study provide evidence that economic
policy uncertainty may be an important dynamic of food inflation. In the fight against food inflation, countries can seek ways to cope with economic policy uncertainty. Although the
study’s findings point to important implications, the available information in this field is quite insufficient for reaching any definite decisions. Therefore, the potential effects of economic policy uncertainty on food prices require further evidence. Future studies may consider economic policy uncertainty as an explanatory variable while investigating the factors that cause inflation in food prices.
