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The Effects of Exchange Rates on CPI and PPI

Author

Listed:
  • Usupbeyli, Akin

    (Ankara University)

  • Ucak, Sefer

    (Balıkesir University)

Abstract

Strong correlation between exchange rate fluctuations and inflation rates in developing countries makes important to measure the impact of the exchange rate on domestic prices, especially for the countries applying an inflation targeting, like Turkey. Besides, in the countries having high import dependency in energy and intermediate goods, the transition of an increase in the exchange rates to domestic prices is complete. This study examines the effects of exchange rates (US Dollar) fluctuations (ER) on consumer price index (CPI) and producer price index (PPI) between 2003:01-2019:10 in Turkey. As ER series is [I(1)] and CPI and PPI series are [I(0)], ARDL model is applied. Results show that there exists a cointegration between the series and there is a bidirectional causality between CPI and ER; unidirectional relation from ER to PPI. No causality is detected from PPI to ER. When the short-run relationship between ER and CPI is examined, it was found that a depreciation in ER in Turkey causes increase in CPI. Similar results are found for the relation between ER and PPI.

Suggested Citation

  • Usupbeyli, Akin & Ucak, Sefer, 2020. "The Effects of Exchange Rates on CPI and PPI," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 11(2), pages 323-334, April.
    • Handle: RePEc:ris:buecrj:0474
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    Citations

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    Cited by:

    1. Golitsis, Petros & Gkasis, Pavlos & Bellos, Sotirios K., 2022. "Dynamic spillovers and linkages between gold, crude oil, S&P 500, and other economic and financial variables. Evidence from the USA," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    2. Joseph Musandiwa & Collins C. Ngwakwe, 2023. "The Effect of Exchange Rates on Consumer Price Index," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 47-52, December.

    More about this item

    Keywords

    Exchange Rate; Inflation; Consumer Price Index; Pass Through; ARDL Bounds Test;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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