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Exchange Rate Pass-Through in Turkey

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  • Marco Rossi
  • Daniel Leigh
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    Abstract

    In light of the strong correlation between exchange rate movements and domestic prices in Turkey, it is important to assess the impact of the exchange rate on domestic prices, in particular as Turkey moves to an inflation targeting regime. This paper uses a recursive vector autoregression model to investigate the impact of exchange rate movements on prices in Turkey. We find that (i) the impact of the exchange rate on prices is over after about a year, but is mostly felt in the first four months, (ii) the pass-through to wholesale prices is more pronounced compared to the pass-through to consumer prices, and (iii) the estimated pass-through is complete in a shorter time and is larger than that estimated for other key emerging market countries.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/204.

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    Length: 18
    Date of creation: 01 Nov 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/204

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    Related research

    Keywords: Inflation targeting; exchange rate; inflation; exchange rate movements; exchange rate shock; nominal exchange rate; exchange rate shocks; exchange rate pass; price inflation; monetary policy; exchange rate changes; exchange rate change; price level; actual inflation; inflation rates; exchange rate depreciation; inflation targeting regime; currency substitution; exchange rates; aggregate demand; rate of inflation; exchange rate depreciations; real exchange rate; real output; changes in prices; exchange rate misalignment; real exchange rate misalignment; inflationary expectations; dollar exchange rate;

    References

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    1. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
    2. Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
    3. Billmeier, Andreas & Bonato, Leo, 2004. "Exchange rate pass-through and monetary policy in Croatia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 426-444, September.
    4. Ariel Burstein & Martin Eichenbaum & Sergio T. Rebelo, 2002. "Why Are Rates of Inflation So Low After Large Devaluations?," RCER Working Papers 486, University of Rochester - Center for Economic Research (RCER).
    5. Dalia Hakura & Ehsan U. Choudhri, 2001. "Exchange Rate Pass-Through to Domestic Prices," IMF Working Papers 01/194, International Monetary Fund.
    6. Ashok Bhundia, 2002. "An Empirical Investigation of Exchange Rate Pass-Through in South Africa," IMF Working Papers 02/165, International Monetary Fund.
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    Citations

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    Cited by:
    1. Zulfiqar Hyder & Sardar Shah, 2005. "Exchange Rate Pass-Through to Domestic Prices in Pakistan," Macroeconomics 0510021, EconWPA.
    2. Hande Kucuk-Tuger & Burc Tuger, 2004. "Relative Price Variability : The Case of Turkey 1994-2002," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 4(2), pages 1-40.
    3. Antonio Forte, 2009. "The pass-through effect: a twofold analysis," EERI Research Paper Series EERI_RP_2009_08, Economics and Econometrics Research Institute (EERI), Brussels.
    4. Sel Dibooglu & Aykut Kibritcioglu, 2003. "Inflation, Output Growth, and Stabilization in Turkey, 1980-2002," Macroeconomics 0306001, EconWPA.
    5. Levent, Korap, 2008. "A monetary model of TL/US$ exchange rate: a co-integrating approach," MPRA Paper 20389, University Library of Munich, Germany.
    6. Kenji Moriyama, 2008. "Investigating Inflation Dynamics in Sudan," IMF Working Papers 08/189, International Monetary Fund.
    7. Aykut Kibritcioglu, 2004. "A Short Review of the Long History of Turkish High Inflation," Economics Bulletin, AccessEcon, vol. 28(2), pages A0.
    8. Aleem, Abdul & Lahiani, Amine, 2014. "A threshold vector autoregression model of exchange rate pass-through in Mexico," Research in International Business and Finance, Elsevier, vol. 30(C), pages 24-33.
    9. Yilmazkuday, Hakan, 2011. "Monetary policy and credit cards: Evidence from a small open economy," Economic Modelling, Elsevier, vol. 28(1), pages 201-210.
    10. Federico Marongiu, 2004. "Devaluación e Inflacion en Argentina despues de la Convertibilidad," Macroeconomics 0404013, EconWPA.
    11. 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, vol. 11(2), pages 71-84.
    12. Nikolay Gueorguiev, 2003. "Exchange Rate Pass-Through in Romania," IMF Working Papers 03/130, International Monetary Fund.
    13. Levent, Korap, 2006. "An empirical analysis of Turkish inflation (1988-2004): some non-monetarist estimations," MPRA Paper 19630, University Library of Munich, Germany.
    14. Jiang, Jiadan & Kim, David, 2013. "Exchange rate pass-through to inflation in China," Economic Modelling, Elsevier, vol. 33(C), pages 900-912.
    15. Carlos de Almeida Cardoso & Flávio Vilela Vieira, 2004. "Câmbio, Inflação E Juros Na Transição Do Regime Cambial Brasileiro: Uma Análise De Vetores Auto-Regressivos E Causalidade," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 080, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    16. Jinbin Wang & Nan Li, 2010. "Exchange rate pass-through: The case of China," Frontiers of Economics in China, Springer, vol. 5(3), pages 356-374, September.
    17. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    18. Faruk Selçuk, 2005. "The Policy Challenge with Floating Exchange Rates: Turkey’s Recent Experience," Open Economies Review, Springer, vol. 16(3), pages 295-312, July.

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