Impact of Exchange Rate Changes on Domestic Inflation: he Turkish Experience
This paper examines the extent to which changes in exchange rates result in changes in Turkish domestic inflation. Specifically, we determine if there has been a change in the magnitude of this impact from the pre-2003 period to the post-2003, when the exchange rates were allowed to float. Employing monthly frequency data, we estimate two impulse-response functions and pass-through coefficients, one derived for the 1994April-2002December period using 1994 price indices as base (100) and the other one derived for the 2003January-2006December period using the 2003 price indices as base (100). We confirm that exchange rate shocks feed into domestic inflation, first at the level of manufacturers’ prices and then at the level of consumer prices, and that the impact of the shocks on the price variables of the various stages of the supply chain is different. Our findings indicate that the magnitude of the impact has declined for the post-2003 period by nearly one-half compared to the pre-2003 period during the early stages of the production process reflecting the predominance of the manufacturer price index in determining Turkish inflation rates. In addition, the decline in the exchange rate pass-through impact on domestic prices coincides with a 25 percent decline in the post-2003 consumer price inflation. Regardless, the consideration of the impact of exchange rate changes on the domestic inflationary process is still important when establishing monetary policies for the Turkish economy.
|Date of creation:||Dec 2007|
|Date of revision:|
|Publication status:||Published in The Business Review, Cambridge 2.8(2007): pp. 150-158|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dubravko Mihaljek & Marc Klau, 2001. "A note on the pass-through from exchange rate and foreign price changes to inflation in selected emerging market economies," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 69-81 Bank for International Settlements.
- Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May.
- Bahmani-Oskooee, Mohsen & Kara, Orhan, 2000. "Exchange rate overshooting in Turkey," Economics Letters, Elsevier, vol. 68(1), pages 89-93, July.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- 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.
- Jonathan McCarthy, 2007.
"Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies,"
Eastern Economic Journal,
Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
- J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements.
- Jonathan McCarthy, 2000. "Pass-through of exchange rates and import prices to domestic inflation in some industrialized economies," Staff Reports 111, Federal Reserve Bank of New York.
- Leo Bonato & Andreas Billmeier, 2002.
"Exchange Rate Pass-Through and Monetary Policy in Croatia,"
IMF Working Papers
02/109, International Monetary Fund.
- Billmeier, Andreas & Bonato, Leo, 2004. "Exchange rate pass-through and monetary policy in Croatia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 426-444, September.
- Barhoumi, Karim, 2006. "Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation," Economic Modelling, Elsevier, vol. 23(6), pages 926-951, December.
- Aykut Kibritcioglu, 2001.
"Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation,"
AccessEcon, vol. 28(21), pages A0.
- Aykut Kibritcioglu, 2001. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," Macroeconomics 0107002, EconWPA, revised 10 Oct 2001.
- Frankel, Jeffrey A. & Wei, Shang-jin & Parsley, David, 2012.
"Slow Pass-through Around the World: A New Import for Developing Countries?,"
10494212, Harvard Kennedy School of Government.
- 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.
- Frankel, Jeffrey & Parsley, David & Wei, Shang-Jin, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," Working Paper Series rwp05-016, Harvard University, John F. Kennedy School of Government.
- Jeffrey A. Frankel & David C. Parsley & Shang-Jin Wei, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," NBER Working Papers 11199, National Bureau of Economic Research, Inc.
- Jose Manuel Campa & Linda S. Goldberg, 2002.
"Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?,"
NBER Working Papers
8934, National Bureau of Economic Research, Inc.
- Campa, Jose M. & Goldberg, Linda S., 2002. "Exchange rate pass-through into import prices: A macro or micro phenomenon?," IESE Research Papers D/475, IESE Business School.
- Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange rate pass-through into import prices: a macro or micro phenomenon?," Staff Reports 149, Federal Reserve Bank of New York.
- Hakan Kara & Fethi Ogunc, 2005. "Exchange Rate Pass-Through in Turkey : It is Slow, but is it Really Low?," Working Papers 0510, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Rudi Dornbusch, 2002.
"A Primer on Emerging-Market Crises,"
in: Preventing Currency Crises in Emerging Markets, pages 743-754
National Bureau of Economic Research, Inc.
- Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
- Korhonen, Iikka & Wachtel, Paul, 2005.
"A note on exchange rate pass-through in CIS countries,"
BOFIT Discussion Papers
2/2005, Bank of Finland, Institute for Economies in Transition.
- Korhonen, Iikka & Wachtel, Paul, 2006. "A note on exchange rate pass-through in CIS countries," Research in International Business and Finance, Elsevier, vol. 20(2), pages 215-226, June.
- Cem Saatcioglu & Levent Korap, 2006. "Determinants of Turkish Inflation," Working Papers 2006/7, Turkish Economic Association.
- Akyuz, Yilmaz & Boratav, Korkut, 2003. "The Making of the Turkish Financial Crisis," World Development, Elsevier, vol. 31(9), pages 1549-1566, September.
- Dalia Hakura & Ehsan U. Choudhri, 2001.
"Exchange Rate Pass-Through to Domestic Prices; Does the Inflationary Environment Matter?,"
IMF Working Papers
01/194, International Monetary Fund.
- Choudhri, Ehsan U. & Hakura, Dalia S., 2006. "Exchange rate pass-through to domestic prices: Does the inflationary environment matter?," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 614-639, June.
- Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
- Ilan Goldfajn & Sergio R.C. Werlang, 2000.
"The pass-through from depreciation to inflation : a panel study,"
Textos para discussão
423, Department of Economics PUC-Rio (Brazil).
- Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
- Elif C. Arbatli, 2003. "Exchange Rate Pass-Through in Turkey : Looking for Asymmetries," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(2), pages 85-124.
- repec:ebl:ecbull:v:3:y:2005:i:26:p:1-14 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:19589. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.