Original scientific paper
OIL PASS-THROUGH TO DOMESTIC PRICES IN TURKEY: DOES THE CHANGE IN INFLATION REGIME MATTER?
A. NAZIF ÇATIK
MEHMET KARAÇUKA
Abstract
This paper investigates the existence
of oil pass through to inflation under
different inflation regimes in Turkey.
In order to compare the difference
between the oil pass-through effects in the low
and high inflation periods we employ Markov
Regime Switching Vector Autoregressive
(MS-VAR) model as a non-linear estimation
framework. The regime-dependent impulse
responses do not indicate strong pass through
from crude oil prices to inflation in both
regimes. However, this channel is working
through refined petroleum product prices. The
results show that there is a substantial decline
in pass-through from refined petroleum prices
to inflation as the economy moves from high
to low inflation regime. These findings support
the hypothesis of Taylor (2000) suggesting that
low inflationary environment leads to a low
pass-through.
Keywords
Inflation; Oil shocks; Pass-through; Regime-dependent impulse responses; MS-VAR model
Hrčak ID:
86637
URI
Publication date:
15.6.2012.
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