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The Degree of Currency Substitution and Exchange Rate Pass-Through

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  • Ülke, Volkan

Abstract

This study investigates the effect of the degree of currency substitution on the exchange rate pass-through (ERPT) to import and domestic prices in Turkey, using monthly data between 1998 and 2013. The recursive interacted vector autoregressive (IVAR) specification of Towbin and Weber (2013) is employed, based on McCarthy’s (1999) distribution chain model. Currency substitution is treated as an interaction term in the IVAR specification. The empirical evidence suggests that high currency substitution increases the effect of ERPT to import and domestic prices.

Suggested Citation

  • Ülke, Volkan, 2015. "The Degree of Currency Substitution and Exchange Rate Pass-Through," MPRA Paper 75633, University Library of Munich, Germany, revised 15 Dec 2015.
  • Handle: RePEc:pra:mprapa:75633
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate pass-through; currency substitution; inflation; interacted VAR.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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