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Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?

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  • Hakan Kara
  • Hande Kucuk Tuger
  • Umit Ozlale
  • Burc Tuger
  • Devrim Yavuz
  • Eray M. Yucel

Abstract

This study analyses the impact of exchange rates on domestic prices in Turkey. We seek to demonstrate the variations (if any) in the exchange rate pass-through across different exchange rate regimes, identify the determinants of this change, and characterize the degree and extent of pass-through across different sub-sectors. Our empirical results reveal that the pass-through of exchange rates to domestic prices has declined in the post-2001 period in comparison with the earlier episodes –thanks to a decline in the “indexation” behavior. These findings suggest that switching to floating exchange rate regime and implementing an ambitious disinflation policy have contributed, to a large extent, to the reduction in the pass-through. Nevertheless, the impact of exchange rate on inflation, especially in the traded good is still notable, pointing out that the effect of nominal exchange rate movement on relative prices have increased in the float period.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0504.

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Date of creation: 2005
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Handle: RePEc:tcb:wpaper:0504

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Keywords: Exchange rate pass-through; Time-varying parameters; Seemingly unrelated regressions; Disinflation; Floating exchange rate regime;

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References

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  1. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2011, Harvard - Institute of Economic Research.
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  12. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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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. Hatipoglu, Ozan & Alper, C. Emre, 2007. "Estimating Central Bank Behavior in Emerging Markets: The Case of Turkey," MPRA Paper 7107, University Library of Munich, Germany, revised Jan 2008.
  3. Beirne, John & Bijsterbosch, Martin, 2011. "Exchange rate pass-through in central and eastern European EU Member States," Journal of Policy Modeling, Elsevier, Elsevier, vol. 33(2), pages 241-254, March.
  4. Baki Demirel & Baris Alpaslan & Emre Guneser Bozdag, 2013. "Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1318, Koc University-TUSIAD Economic Research Forum.
  5. Ara Volkan & Cem Saatçioðlu & Levent Korap, 2007. "Impact of Exchange Rate Changes on Domestic Inflation: The Turkish Experience," Working Papers, Turkish Economic Association 2007/6, Turkish Economic Association, revised Aug 2007.
  6. 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.
  7. Hakan Kara & Hande Kucuk Tuger, 2005. "Some Evidence on the Irrationality of Inflation Expectations in Turkey," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0512, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  8. Beirne, John & Bijsterbosch, Martin, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series, European Central Bank 1120, European Central Bank.
  9. Fatih Ozatay, 2005. "Monetary Policy Challenges for Turkey in European Union Accession Process," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0511, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  10. 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.
  11. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2006/5, Magyar Nemzeti Bank (the central bank of Hungary).
  12. repec:onb:oenbwp:y:2006:i:1:b:1 is not listed on IDEAS
  13. Minoas Koukouritakis & Athanasios Papadopoulos & Andreas Yannopoulos, 2013. "Transmission Effects in the Presence of Structural Breaks: Evidence from South-Eastern European Countries," Working Papers, University of Crete, Department of Economics 1303, University of Crete, Department of Economics.
  14. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Central & Eastern Europe: Gliding on a Wind of Change," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp850, William Davidson Institute at the University of Michigan.
  15. Jobert, Thomas & Karanfil, Fatih, 2007. "Sectoral energy consumption by source and economic growth in Turkey," Energy Policy, Elsevier, Elsevier, vol. 35(11), pages 5447-5456, November.
  16. Minoas Koukouritakis & Athanasios Papadopoulos & Andreas Yannopoulos, 2013. "Linkages between the Eurozone and the South-Eastern European Countries: A VECMX* Analysis," Working Papers, University of Crete, Department of Economics 1302, University of Crete, Department of Economics.
  17. Igor Velickovski, 2013. "Assessing independent monetary policy in small, open and euroized countries: evidence from Western Balkan," Empirical Economics, Springer, Springer, vol. 45(1), pages 137-156, August.
  18. Peeters, Marga, 2005. "What about monetary transmission in Albania? Is the exchange rate pass-through (still) the main channel?," MPRA Paper 23671, University Library of Munich, Germany, revised 24 Oct 2005.
  19. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  20. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission in Central and Eastern Europe: Gliding on a Wind of Change," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 44-87.
  21. James L. Butkiewicz & Zeliha Ozdogan, 2013. "Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey," Working Papers, University of Delaware, Department of Economics 13-08, University of Delaware, Department of Economics.

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