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Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies

Author

Listed:
  • Baki Demirel

    () (University of Gaziosmanpasa, Faculty of Economics and Administrative Sciences, Economics)

  • Baris Alpaslan

    () (University of Manchester, School of Social Sciences, Economics)

  • Emre Guneser Bozdag

    () (University of Gazi, Faculty of Economics and Administrative Sciences, Economics)

Abstract

After 1980s, chronic inflation in Turkey has shaken the confidence in the domestic currency, and thus operating debit-credit transactions through dollars. The aim of this study is to analyse the impact of exchange rate pass-through into inflation in both Turkey and emerging market economies that were highly dollarized and shifted to a flexible exchange rate regime, together with inflation targeting policy in an attempt to switch to the advanced economy, and to examine whether stabilization programs under flexible exchange rate regimes and particularly inflation targeting policy may eliminate dollarization in the periods 1995-2001 and 2002-2010.

Suggested Citation

  • Baki Demirel & Baris Alpaslan & Emre Guneser Bozdag, 2013. "Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies," Koç University-TUSIAD Economic Research Forum Working Papers 1318, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1318
    as

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1318.pdf
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    References listed on IDEAS

    as
    1. Michael B. Devereux & Philip R. Lane & Juanyi Xu, 2006. "Exchange Rates and Monetary Policy in Emerging Market Economies," Economic Journal, Royal Economic Society, vol. 116(511), pages 478-506, April.
    2. Jose Manuel Campa & Linda S. Goldberg, 2008. "Pass-Through of Exchange Rates to Consumption Prices: What Has Changed and Why?," NBER Chapters,in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 139-176 National Bureau of Economic Research, Inc.
    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    4. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
    5. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," IDB Publications (Working Papers) 1628, Inter-American Development Bank.
    6. Fred Furlong & Robert Ingenito, 1996. "Commodity prices and inflation," Economic Review, Federal Reserve Bank of San Francisco, pages 27-47.
    7. 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.
    8. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 411-422.
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    10. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies?
      by pmakdissi in NEP-ARA blog on 2013-11-06 11:56:20

    More about this item

    Keywords

    De-Dollarization; Inflation Targeting; Exhange Rate Pass-Through;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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