Impacts of energy shocks on macroeconomic variables in Turkey: A new Keynesian dynamic stochastic general equilibrium model application

In this study, the macroeconomic effects of the energy-related shocks are analyzed by means of the developed dynamic stochastic general equilibrium (DSGE) model for the period 2007:1-2016:4. In this context, the effects of the four different shocks are investigated. These shocks are world real energy price shock, domestic real energy price shock, energy exports shock and productivity shock, respectively. Based on the impulse-response functions obtained as a result of these shocks, the most prominent ones are as follows: A shock occurring in both world and domestic energy prices has effects occurring in the same direction having negative features. However, impacts of the domestic energy shock are determined as longer and cumulatively higher. This condition is considered as an economic event stemmed from exchange rates. For this reason, the stabilization of exchange rates is concluded as significant with regards to the prevention of contractionary effects. It is concluded that monetary policy increases the contractionary effect of energy shocks as a secondary effect. As for positive productivity shock, it has positive effects in general. However, the decrease in energy requirement in production also leads to a decrease in employment due to the great complementarity relationship between labour and energy inputs. A human capital oriented growth strategy is concluded as necessary to prevent this employment decrease. On the other hand, a positive shock occurring in energy exports has positive impacts on the major macroeconomic variables. Therefore, it is considered that an increase in energy exports which would occur in the forthcoming periods would have positive contributions to the economy.