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Real Exchange Rate Fluctuations and Relative Prices in Turkey

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  • Ugur Ciplak

Abstract

Traditional theory puts forwards that real exchange rate fluctuations should result from the changes in the relative price of non-tradable goods since tradable goods' prices are to equalize among countries due to the law of one price. However, significant number of researches reported that in many cases, the contribution of tradable goods' prices is not negligible, or even surpass that of the non-tradable goods' prices. This paper studies the relation between the real exchange rate and relative prices for Turkey. The relation is found to be stronger with the relative price of tradable goods, unlike the traditional theory. But the proportion of the fluctuations in real exchange rates accounted for by relative non-tradable goods prices has increased in recent years. These findings imply the real exchange rates in Turkey to be driven by nominal factors, rather than real factors until recently.

Suggested Citation

  • Ugur Ciplak, 2007. "Real Exchange Rate Fluctuations and Relative Prices in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 7(2), pages 29-48.
    • Handle: RePEc:tcb:cebare:v:7:y:2007:i:2:p:29-48
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2007/Volume+7-2/
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    References listed on IDEAS

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    Cited by:

    1. Ouyang, Alice Y. & Rajan, Ramkishen S., 2013. "Real exchange rate fluctuations and the relative importance of nontradables," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 844-855.

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    More about this item

    Keywords

    Real Exchange Rate Decomposition; Relative rices;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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