Food Prices and Monetary Policy: Evidence from Türkiye

This study investigates the relationship between monetary policy and food prices over the period of 2011:M1-2024:M9 in the case of a small economy, Türkiye. We perform a Structural Vector Autoregression (SVAR) to capture the dynamic relationship between monetary policy and food prices. Our non-recursive identification scheme is formed based on the small-open economy characteristics which are in line with economic theory. Our empirical results showed that expansionary monetary policy is associated with a fall in food prices. As food prices move in the same direction with the decreasing interest rate, an expansionary monetary policy shock generates price puzzle and stabilizes food prices. Similar to food prices consideration, expansionary monetary policy also generates price puzzle in overall economy. The relative weakness of the demand channel allows us to recommend unconventional expansionary monetary policy practice in fighting against food and consumer inflation. We also performed several robustness checks and found that our results are robust.