Does a Contractionary Monetary Policy in Turkey Stabilise Food Inflation?
Oğuz TümtürkThis study analyzes the impact of the monetary policy in Turkey on domestic food inflation. We statistically show that contractionary monetary policies produce positive asymmetric impacts and destabilise food inflation. This result shows that the cost channel of the monetary transmission mechanism prevails over the demand channel of the monetary transmission mechanism. We also provide empirical evidence that an increase in energy and world food prices also drives domestic food inflation. These results are robust with respect to employing different control variables, the estimation of the model with different data sets, and the structural breaks that occurred during the study period.
Türkiye’de Uygulanan Sıkılaştırıcı Para Politikası Gıda Enflasyonu Üzerinde İstikrar Sağlar mı?
Oğuz TümtürkBu çalışma, Türkiye’de uygulanan para politikasının gıda enflasyonu üzerindeki etkisini analiz etmektedir. Çalışmada elde edilen sonuçlara göre, sıkılaştırıcı para politikası asimetrik pozitif tepkiler meydana getirmekte ve gıda enflasy6 onu üzerinde istikrar bozucu etkiler yaratmaktadır. Bu durum, para politikasının parasal aktarım mekanizmasının maliyet kanalının etkinliğinin, talep kanalına göre daha yüksek olması ile açıklanabilmektedir. Bununla birlikte, enerji ve dünya gıda fiyatlarında meydana gelen değişimlerin, ulusal gıda fiyatlarını arttırdığı gözlenmektedir. Elde edilen bu sonuçlar, farklı kontrol değişkeni kullanılmasına, modelin farklı veri setleri ile tahminine ve dönem içinde gerçekleşen yapısal kırılmalara karşı da oldukça tutarlıdır.
Food prices may have a significant impact on consumer inflation dynamics as they share a significant portion of the overall inflation basket. According to the Turkish Statistical Institute, the weight of the food and non6alcoholic beverages category in the basket of goods and services is approximately 25% while the remaining 11 goods and services categories in the basket is 75% in September 2024. Therefore, an increase in food prices may easily endanger the price stability objective of CBRT. For this reason, central banks closely monitor the potential impacts of food price changes on the general price level. At this point, one can naturally ask the following question: how do the monetary policies conducted by the central banks affect domestic food prices?
The traditional monetary policy tool in the fight against inflation is interest rates. Therefore, when a positive price shock occurs, central banks normally activate “demand channel” in the economy by increasing the interest rate and controlling the positive price changes. However, it is not theoretically certain that a contractionary monetary policy will reduce food inflation. Although the stabilising role of monetary policy on food inflation is generally accepted through the demand channel of the monetary transmission mechanism, the demand channel may not be the only channel that contractionary monetary policy affects. An increase in the policy rate may also trigger the “cost channel” and produce positive changes in food prices via borrowing costs. As a result, the impact of monetary policy on food prices will depend on the size of the demand and cost channel of the monetary transmission mechanism.
This study explores the impact of the monetary policy in Turkey on domestic food inflation over the period of 2011M162024M8. We employ the quantile regression method proposed by Koenker (2005). This method stands out when the distributions of the variables of interest show extreme statistical properties such as skewed data, nonnor6 mality, more outliers, and fat tails. The distribution of financial variables in developed or undeveloped countries might often exhibit extreme statistical properties due to frequently occurring political and economic instabilities along with other supply shocks. In the literature, there is an extensive consensus that food prices might generate extreme changes due to seasonal factors. Turkish domestic food inflation data also provide tail dynamics with posi6 tively skewed data. Since the positively skewed data refers that most data clustered on the left and outliers appear on the longer right tail, the food inflation distribution exhibits an asymmetric shape. In addition, since the data reveals leptokurtic features, the outliers have more probability mass at the tails than one with Gaussian normal distribution. As a result, we included the asymmetric feature of the food inflation data by employing quantile regression when exploring the link between the independent variables and the quantiles of the conditional distribution of food inflation.
This paper provides evidence that contractionary monetary policy has a destabilising impact on food inflation. That is, a positive shock in interest rates increases food inflation. This also implies that the cost channel of the monetary transmission mechanism prevails over the demand channel and increases prices by borrowing costs. Second, the conducted monetary policy has an asymmetric impact on food inflation, and these impacts captured by quantile regression are confirmed statistically and economically in the paper. Also, we showed that the mean6based OLS result underestimates the impact of the monetary policy conducted by the CBRT. Third, an increase in energy prices and world food prices generates a positive impact on the quantile of inflation distribution. On the other hand, the impact of the real exchange rate and demand conditions on food inflation is statistically insignificant. These results are robust with respect to employing different control variables, the estimation of the model with different data sets, and the structural breaks that occurred during the study period.
