An asymmetric analysis of the relationship between oil prices and output: The case of Turkey |
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| Affiliation: | 1. Pontificia Universidad Católica del Perú, Lima, Perú;1. Financial Econometrics Group, Centre for Research in Economics and Financial Econometrics, School of Accounting, Economics and Finance, Deakin University, Australia;2. Department of Economics, University of Pretoria, Pretoria, 0002, South Africa;1. College of Economics and Academy of Financial Research, Zhejiang University, Hangzhou 310027, China;2. College of Economics, Zhejiang University, Hangzhou 310027, China |
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| Abstract: | In this paper we analyze the asymmetric impact of oil price changes on the economic activity in Turkey. In contrast to previous studies on Turkey, the existence of an asymmetric relationship between economic activity and oil prices is investigated by regime-dependent impulse response functions and forecast error variance decompositions based on a multivariate two-regime Threshold VAR (TVAR) model. Our analysis suggests that the relationship between oil prices and macroeconomic activity is nonlinear and exhibits an asymmetric pattern: oil price changes have a significant effect on inflation and output when the change exceeds a certain threshold level. The lower response of macroeconomic variables to oil price shocks in the low oil price change regime also indicates that only the shocks exceeding the optimal threshold level are able to create a contraction in the economic activity. |
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