Relationship Between Oil Prices and Real-Exchange Rate in Turkey: An Investigation Using Asymmetric Fourier Causality AnalysisFatma Kızılkaya
Oil-importing developing countries such as Turkey may be adversely affected by the increase in oil prices, which can raise production costs and the overall level of consumer prices. Increases in oil prices in international markets may also adversely affect the foreign trade balance of oil-importing countries. In this study, annual data for the period 1960–2019 in Turkey are used to investigate asymmetric causality relationships between oil prices and real exchange rate variables. Causality relationships between oil prices and real exchange-rate series, and between positive and negative shocks of these series, are examined using the Fourier Toda–Yamamoto method. The results show no symmetric causality relationship between oil prices and real exchange rate variables. However, a one-way causality relationship is revealed from positive oil price shocks to positive real exchange rate shocks, indicating that an increase in oil prices causes an increase in the real exchange rate in Turkey. According to these results, asymmetric effects should be considered when examining the relationship between oil prices and exchange rates in Turkey.
Türkiye’de Petrol Fiyatları ve Reel Döviz Kuru İlişkisinin Asimetrik Fourier Nedensellik Analizi ile İncelenmesiFatma Kızılkaya
Türkiye gibi petrol ithal eden gelişmekte olan ülkeler petrol fiyatlarındaki artıştan olumsuz etkilenebilmektedir. Petrol fiyatlarının artması petrol ithal eden ülkelerde üretim maliyetlerinin ve dolayısıyla fiyatlar genel düzeyinin yükselmesine neden olabilmektedir. Ayrıca, uluslararası piyasalarda petrol fiyatlarının artış göstermesi petrol ithal eden ülkelerin dış ticaret dengelerini de olumsuz etkileyebilmektedir. Bu çalışmada Türkiye için 1960- 2019 dönemi yıllık veriler kullanılmış ve petrol fiyatları ile reel döviz kuru değişkenleri arasındaki asimetrik nedensellik ilişkileri araştırılmıştır. Bu doğrultuda hem petrol fiyatları ile reel döviz kuru serileri arasındaki hem de bu serilerin pozitif ve negatif şokları arasındaki nedensellik ilişkileri Fourier Toda-Yamamoto yöntemi kullanılarak incelenmiştir. Elde edilen sonuçlar petrol fiyatları ile reel döviz kuru değişkenleri arasında simetrik nedensellik ilişkisinin olmadığını, buna rağmen pozitif petrol fiyatı şoklarından pozitif reel döviz kuru şoklarına doğru tek yönlü nedensellik ilişkisinin olduğunu göstermektedir. Yani petrol fiyatlarının artması Türkiye’de reel döviz kurunun artmasına neden olmaktadır. Bu sonuçlara göre, Türkiye’de petrol fiyatları ile döviz kuru ilişkisi incelenirken asimetrik etkilerin göz önünde bulundurulması gerekmektedir.
Petroleum and petroleum products are vital for the continuous operation of economic operations in countries around the world. Petroleum products are also an important foreign trade commodity that generates considerable income for oil-exporting countries, as well as an imperative production input of significant expenditure for oil-importing countries. These two opposing effects also represent an essential export/import commodity subject to trade between countries. Export revenue from petroleum products in the international market and import expenditure for petroleum products are among the critical variables that determine countries’ macroeconomic performance. For this reason, in the face of sudden shocks in global markets (e.g., oil supply–demand and exchange rate shocks), countries may face adverse conditions, such as stagnant economic growth, decreased foreign trade, and inflation, which can have negative effects on national welfare.
The USD dollar, which has the uppermost share in international reserve currency status, has a major influence in the international trade of petroleum products, like many other products. Undoubtedly, fluctuations in the dollar exchange rate have differing effects on oil exporting and importing countries. An overvalued dollar exchange rate may cause more costly imports for oil-importing countries resulting in foreign trade deficits. Therefore, negative exchange rate shocks that occur in global markets may cause a decrease in countries’ foreign trade income or an increase in costs, affecting important macroeconomic variables such as inflation, savings, and economic growth in particular. In this sense, the important relationship between oil prices and exchange rates is followed closely by both policymakers and investors.
The demand for petroleum and petroleum products, which are an essential production input for countries’ economic performance, is rising in Turkey, as well as on a global scale. Due to limited reserves, most of Turkey’s crude oil needs are met through imports. Consequently, determining the direction of causality between oil prices and exchange rates can provide vital information for policymakers and investors to better understand the dynamics of the relationship. This study investigates symmetric and asymmetric causality relationships between oil prices and real exchange rate variables using annual data for the period 1960– 2019 for Turkey. Both the relationship between crude oil prices and real exchange rate series and the causality relationships between positive and negative shocks of these series are examined using the Fourier Toda–Yamamoto method. The results show no symmetric causality relationship between oil prices and real exchange rate variables; however, a one-way causality relationship is revealed from positive oil price shocks to positive real exchange rate shocks, indicating that the increase in oil prices causes an increase in the real exchange rate in Turkey. According to these results, asymmetric effects should be considered when examining the relationship between oil prices and exchange rates in Turkey. Oil imports are crucial in the sustainability of economic activities in Turkey. In this sense, the increase in oil prices will increase Turkey’s import expenditure and thus foreign exchange demand. The increase in the demand for foreign currency puts pressure on the exchange rates in Turkey due to limited alternative income sources. Increases in the exchange rate adversely affect the macroeconomic balances of the country, principally, account deficit and cost inflation. In this sense, long-term policies to reduce dependence on petroleum products should be developed and strongly advocated. It is recommended to implement structural reforms that encourage the diversification of energy consumption, particularly through the development of alternative clean energy sources (such as solar, wind, nuclear, and hydroelectric).