The Effects Of Energy Prices On Inflation And Monetary Policy: The Case Of Turkey

Abstract

The NARDL Bounds Test method was employed in the thesis study to examine the impact of energy prices on inflation in Türkiye during the period of 2012:01-2022:12. Furthermore, the study investigated the effects of energy prices on monetary policy using a modified Taylor rule for the period of 2006-2022, which coincided with the country's transition to the inflation targeting regime. While previous empirical studies in the economic literature typically focused on the international crude oil price, this study explored the effects on domestic inflation using two different models that incorporated the Market Clearing Price variable in addition to the aforementioned variable. The aim was to contribute to the existing economic literature. The study revealed that the pass-through effect from international oil prices to consumer prices is both asymmetrical and significant. These findings confirmed the effectiveness of the subsidy mechanisms implemented in domestic final energy prices in combating inflation. Additionally, it was found that the Market Clearing Price significantly influences inflation and exhibits symmetrical effects. However, from an econometric perspective, the impact of energy prices on monetary policy was found to be weak. Consequently, it is crucial for the public sector and economic decision makers to closely monitor the Market Clearing Price, as it is an important and influential variable.