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Exchange Rate Pass-Through in Turkey : Looking for Asymmetries

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  • Elif C. Arbatli

Abstract

This paper uses the VAR framework introduced in McCarthy (1999) to investigate the nature and extent of pass-through to prices in Turkey. Furthermore, Threshold VAR (TVAR) models are used to assess the possibility of asymmetries in the pass-through. Annual change in the industrial production index, exchange rate and inflation as well as deviation of the change in annual exchange rate from its sample mean are used as threshold variables. The latter variable is used to capture asymmetric effects of small versus big changes in exchange rates on the extent of pass-through. Estimating several TVAR models imply significant asymmetries in the relationship between exchange rate and inflation as measured by Wholesale and Consumer Price Indices. More specifically, we find that pass-through to prices is lower during significant economic contractions, periods with higher exchange rate depreciation and periods with lower inflation. Evidence for asymmetries arise from the magnitude of the change in exchange rates is weaker and quantitatively not very significant.

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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): 3 (2003)
Issue (Month): 2 ()
Pages: 85-124

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Handle: RePEc:tcb:cebare:v:3:y:2003:i:2:p:85-124

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Related research

Keywords: Exchange Rate Pass-Through; Asymmetries; Threshold Vector Autoregressions (TVAR);

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Cited by:
  1. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp333, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," ERC Working Papers, ERC - Economic Research Center, Middle East Technical University 1308, ERC - Economic Research Center, Middle East Technical University, revised Dec 2013.
  3. Levent, Korap, 2007. "Impact of Exchange Rate Changes on Domestic Inflation: he Turkish Experience," MPRA Paper 19589, University Library of Munich, Germany.
  4. Caglar Yunculer, 2011. "Pass-Through of External Factors into Price Indicators In Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 11(2), pages 71-84.
  5. Nazli Toraganli, 2010. "Exchange Rate Pass-Through and Exposure in the Turkish Economy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(1), pages 47-69.
  6. Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  7. Ahmet Benlialper & Hasan Cömert, 2013. "Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey," Working Papers, Turkish Economic Association 2013/11, Turkish Economic Association.

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