Inflation Targeting and Exchange Rate Pass-Through: The Turkish Experience
Using a vector autoregression model, we show that the pass-through from imported inflation to domestic inflation has weakened substantially and slowed after the adoption of inflation targeting in Turkey. We argue that this finding is due mainly to several featuresâsuch as enhanced credibility of the central bank, changing behavior of the exchange rate, and a shift in expectation formationâpossibly acquired by the implementation of a successful inflation-targeting regime. These observations suggest that adopting an inflation-targeting regime in itself may help to reduce exchange rate pass-through.
Volume (Year): 44 (2008)
Issue (Month): 6 (November)
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- Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
- Douglas Steel & Alan King, 2004. "Exchange Rate Pass-through: The Role of Regime Changes," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 301-322.
- Reginaldo P. Nogueira Jnr, 2006. "Inflation Targeting and the Role of Exchange Rate Pass-through," Studies in Economics 0602, School of Economics, University of Kent.
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