Oil price uncertainty and macroeconomic variables in Turkey

This study analyses the influence of uncertainty in oil prices on real economic activity, inflation and money supply in Turkey for the period 1986:1-2019:07. The uncertainty variable is measured by the generalised autoregressive conditional heteroscedasticity (GARCH) model. To investigate the relationship between the uncertainty in oil prices and our variables, we used the non-linear cointegrating autoregressive distributed lag (NARL) model, considering the fact that this relationship may not be linear. Thus, we were able to analyse the short- and long-term non-linear relationship between the variables. Our findings indicate that the impact of oil price uncertainty on real economic activity is asymmetric: that is, real economic activity responds more to decreases in oil price uncertainty than to long-term increases. Similarly, we confirm the existence of both long- and short-term asymmetric behaviour of inflation, and our findings show that positive shocks in oil price uncertainty are more intensively transmitted to inflation than negative ones. Moreover, we provide evidence that a decline in oil price uncertainty is related to higher money supply in the short term. These findings present useful implications for designing appropriate policies to achieve the goals related to Turkey's economic activity and inflation level.