The significance of terms of trade shocks for retail food prices in Turkey

Abstract

Emerging market economies often struggle with macroeconomic instabilities as they experience more persistent terms of trade shocks, volatile exchange rates, and commodity prices compared to the rest of the world. This paper evaluates the impact of terms of trade shocks on retail food prices for an emerging country. To do so, we employ the underlying small open economy macro‐model framework with a panel vector autoregression analysis. Our results show that a positive terms of trade shock decreases retail food prices and their price volatility. Positive terms of trade shock also increases the output gap. We find that these results are more persistent for the fresh fruits and vegetable group, which has the highest price volatility under the retail food prices group. [EconLit Citations: C33, E31, F41].