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Exchange Rate Pass-Through on the Domestic Prices: Evidence from the Turkish Economy

Author

Listed:
  • Gizem BAS

    (Res. Assist., Hatay Mustafa Kemal Universtiy, FEAS, Department of Economics, gizemercelik@mku.edu.tr., https://orcid.org/0000-0002-7667-2992.)

  • Mehmet KARA

    (Professor, Hatay Mustafa Kemal University, FEAS, Department of Economics, mehmetkara@mku.edu.tr., https://orcid.org/0000-0001-5572-2404.)

Abstract

The understanding of the effects of the changes in exchange rates is quite significant for monetary policy implications. Particularly, for developing countries such as Turkey, price instability become a strong factor that makes difficult economic development. Hence, policy implications have crucial roles in the economic activities. The objective of this study is to investigate the pass-through of exchange rate to domestic prices in Turkey for the period of 2010:Q1-2020:Q1. In this context, nominal exchange rate, total import price index, real gross domestic product and consumer price index variables were employed. In the analysis, firstly ADF and KPSS unit root tests are performed. After the variables’ order of stationarity is detected, ARDL method is applied. Based on the analysis results obtained, it is found that there is a cointegration relationship between the variables. Exchange rate and import prices have a significant effects on domestic prices for both the long and the short-term. Accordingly the long-term relations, if nominal exchange rate increases by 1%, inflation also increases by 0.61%. In addition, it is concluded that 1% increase in total import price index leads 0.46% increase in inflation.

Suggested Citation

  • Gizem BAS & Mehmet KARA, 2020. "Exchange Rate Pass-Through on the Domestic Prices: Evidence from the Turkish Economy," Isletme ve Iktisat Calismalari Dergisi, Econjournals, vol. 8(2), pages 115-125.
    • Handle: RePEc:eco:journ4:2020-02-9
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    References listed on IDEAS

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    Cited by:

    1. Mustafa Cakir & Ahmet Ekrem Kaya, 2023. "Does Exchange Rate Pass-Through Change Over Time in Turkiye?," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 359-383, June.

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    More about this item

    Keywords

    Pass Through Effect; Exchange Rate; Turkey;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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