Three essays on the macroeconomic effects of oil prices

This thesis investigates the effects of oil prices on the Turkish economy in three separate yet related empirical studies. Motivated by structural instabilities pointed by pioneering studies in the related literature, empirical methodologies employed in this thesis allow for nonlinear patterns of the relationships among variables of interest. In Chapter 1, we used Markov regime switching VAR model to examine the effects of oil prices on real economic activity considering the role of the cyclical asymmetry using quarterly data over 1990:01-2018:04 period. Our main findings suggest that the reaction of the real economic activity differs depending on the state of the business cycles: oil prices Granger cause output only in recessionary periods. In Chapter 2, using Toda-Yamamoto, Diks-Panchenko and Diks-Wolski causality methods, we consider whether oil price shocks can account for changes in the prices of agricultural products consisting of sunflower, wheat, corn, cotton and soybean, directly or indirectly via exchange rates. Over 1994:01-2016:12 period for monthly data, our results suggest that while oil prices have direct and linear effects on sunflower prices, it affects wheat and corn prices in a nonlinear way via exchange rates. In Chapter 3, the dynamic relationships between stock prices and oil prices are investigated from a sectoral and asymmetric perspective in an NARDL framework. We find strong evidence of asymmetry in the reaction of industrials sector stock prices to changes in the price and uncertainty of crude oil for monthly data over 2007:06-2018:12 period. Namely, only increases of oil prices and only decreases of oil price uncertainty (negatively) effects sectoral stock prices.