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Foreign Currency Debt and the Exchange Rate Pass-Through

Author

Listed:
  • Salih Fendoglu
  • Mehmet Selman Colak
  • Yavuz Selim Hacihasanoglu

Abstract

We show that higher foreign currency indebtedness raises the degree of exchange rate pass-through to domestic producer prices. For identification, we use micro-level data from Turkey, an emerging market economy that has experienced large exchange rate movements over the last decade. Matching the Credit Register of Turkey with disaggregated manufacturing sector data on domestic prices and foreign currency revenues from international trade, we show that sectors with higher ex-ante net foreign-currency liabilities raise their prices significantly more following domestic currency depreciation. The results are stronger if foreign currency liabilities are short term.

Suggested Citation

  • Salih Fendoglu & Mehmet Selman Colak & Yavuz Selim Hacihasanoglu, 2019. "Foreign Currency Debt and the Exchange Rate Pass-Through," Working Papers 1924, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1924
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2019/19-24
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    More about this item

    Keywords

    Exchange rate pass-through; Producer prices; Foreign currency indebtedness; Emerging market economies;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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