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Exchange Rate Inflation Pass-Through in Turkey: A Study with Wavelet Quantile Models

Author

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  • Samet TOPAL
  • Murat AKÇA

Abstract

This study examines the asymmetric and time-varying effects of exchange rate fluctuations on inflation in Türkiye by focusing on USD/TRY and EUR/TRY exchange rates. In the study, wavelet quantile regression (WQR) and wavelet quantile correlation (WQC) methods are used to investigate the dynamic relationship between exchange rates and inflation in different time dimensions and quantiles using monthly data between 2003M1 and 2024M12. The findings reveal an overall positive and statistically significant exchange rate pass-through (ERP), especially in the short run and at the lower and middle quantiles. Both USD and EUR fluctuations exhibit a measurable impact on inflation, with the effects diminishing at higher quantiles and in the long run. The results confirm the existence of nonlinearity and asymmetry in the ERP mechanism and are consistent with previous findings in the literature on emerging economies. The study highlights the importance of exchange rate stability, effective inflation targeting, and import diversification in reducing inflationary pressures originating from external shocks. Application of advanced quantile-based wavelet techniques provides a detailed understanding of Türkiye's inflation dynamics in response to exchange rate movements.

Suggested Citation

  • Samet TOPAL & Murat AKÇA, 2025. "Exchange Rate Inflation Pass-Through in Turkey: A Study with Wavelet Quantile Models," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 4.
    • Handle: RePEc:fis:journl:250430
    DOI: 10.25295/fsecon.1666300
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    Keywords

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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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