Dynamic Interrelationships among Energy Prices, Exchange Rates, and Inflation: An Empirical Analysis for the Turkic Republics

Abstract

The dynamic interrelationships among energy, goods and financial markets in Eurasian economies are not empirically analyzed, yet; and this study attempts to handle this gap in the literature. It examines the dynamic interrelationships for energy (oil and natural gas) prices, inflation rate, and exchange rate in Turkiye, Azerbaijan, Kazakhstan, Kyrgyzstan, and Uzbekistan, covering the period from January 2010 to April 2022, by means of the Toda and Yamamoto approach to Granger causality, impulse-response functions, and variance decompositions. The empirical findings unveil that (i) inflation is mainly driven by natural gas prices, (ii) oil prices cause inflation through natural gas prices, (iii) the exchange rate pass-through to inflation seems country-specific, and (iv) there is a weak dependence between energy prices and exchange rates. Accounting for smooth structural breaks in causality analysis based on the Fourier TodaYamamoto approach reinforces these findings.