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Pass-Through of External Factors into Price Indicators In Turkey

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  • Caglar Yunculer

Abstract

This study analyzes the pass-through of exchange rate and US Dollar denominated import prices into consumer and producer prices in Turkey. To this end, pricing along a distribution chain framework is utilized and it is estimated by Vector Auto Regression (VAR) for the pre-inflation targeting and the inflation targeting periods. Results show that the pass-through of both external factors into producer prices is higher than it is for consumer prices. In addition, the degree of pass-through is significantly lower in the inflation targeting period compared to the previous period. The cumulative exchange rate and import price pass-through coefficients into consumer prices for the recent period are found similar to each other while import price shocks are reflected much faster. For the producer prices, import price shocks are found to be reflected more than the exchange rate shocks. An exercise based on these estimation results shows that during 2007-2009 external factors were influential on consumer prices. Furthermore simultaneous counter movements of exchange rate and import prices at that period limited and sometimes offset the impact of each other on consumer prices.

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Bibliographic Info

Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 11 (2011)
Issue (Month): 2 ()
Pages: 71-84

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Handle: RePEc:tcb:cebare:v:11:y:2011:i:2:p:71-84

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Keywords: Inflation; Pass-through; Exchange rate; Import prices; VAR analysis;

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  1. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York.
  2. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  3. Hakan Kara & Fethi Öğünç, 2008. "Inflation Targeting and Exchange Rate Pass-Through: The Turkish Experience," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(6), pages 52-66, November.
  4. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  5. Georgy Ganev & Krisztina Molnar & Krzysztof Rybinski & Przemyslaw Wozniak, 2002. "Transmission Mechanism of Monetary Policy in Centraland Eastern Europe," CASE Network Reports 0052, CASE-Center for Social and Economic Research.
  6. Hakan Kara & Hande Küçük-Tuger & Ümit Özlale & Burç Tuger & Eray M. Yücel, 2007. "Exchange Rate Regimes And Pass-Through: Evidence From The Turkish Economy," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 206-225, 04.
  7. Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York.
  8. Michael B. Devereux & James Yetman, 2002. "Price Setting and Exhange Rate Pass-Through," Working Papers 222002, Hong Kong Institute for Monetary Research.
  9. Hahn, Elke, 2003. "Pass-through of external shocks to euro area inflation," Working Paper Series 0243, European Central Bank.
  10. Aksoy, Yunus & Riyanto, Yohanes E, 2000. "Exchange Rate Pass-Through in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 235-51, May.
  11. Marco Rossi & Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 02/204, International Monetary Fund.
  12. Patricia S. Pollard & Cletus C. Coughlin, 2004. "Size matters: asymmetric exchange rate pass-through at the industry level," Working Papers 2003-029, Federal Reserve Bank of St. Louis.
  13. Dalia Hakura & Ehsan U. Choudhri, 2001. "Exchange Rate Pass-Through to Domestic Prices," IMF Working Papers 01/194, International Monetary Fund.
  14. Elif C. Arbatli, 2003. "Exchange Rate Pass-Through in Turkey : Looking for Asymmetries," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(2), pages 85-124.
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