Drivers of Food Prices: New Evidence from Turkey

Abstract

This study intends to determine the drivers of high food prices in Turkey by employing the Structural Vector Auto Regression (SVAR) model for the January 2011 and March 2021 periods. The study has used external and domestic factors such as oil prices, world food prices, interest rate, exchange rate, money supply growth rate, producer price in agricultural goods. The findings indicate that all determinants show a significant positive contribution to the explanation of food prices except oil prices. The most substantial explanatory factor of food price is the price inertia shock in food prices. Domestic factors such as producer prices, interest rate, money supply, and exchange rate have also contributed to high food prices, while oil prices and world food prices have not played any substantial role. The results are robust compared to a different SVAR model identified by Cholesky decomposition. It is inferred that both exchange rate and monetary expansion have been quite effective in variations of food price in recent years. Overall, the findings indicate that controlling the food price movements is critical to ensuring overall price stability in the Turkish economy.