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Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?

  • Hakan Kara
  • Hande Kucuk Tuger
  • Umit Ozlale
  • Burc Tuger
  • Devrim Yavuz
  • Eray M. Yucel

This study analyses the impact of exchange rates on domestic prices in Turkey. We seek to demonstrate the variations (if any) in the exchange rate pass-through across different exchange rate regimes, identify the determinants of this change, and characterize the degree and extent of pass-through across different sub-sectors. Our empirical results reveal that the pass-through of exchange rates to domestic prices has declined in the post-2001 period in comparison with the earlier episodes –thanks to a decline in the “indexation” behavior. These findings suggest that switching to floating exchange rate regime and implementing an ambitious disinflation policy have contributed, to a large extent, to the reduction in the pass-through. Nevertheless, the impact of exchange rate on inflation, especially in the traded good is still notable, pointing out that the effect of nominal exchange rate movement on relative prices have increased in the float period.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/4cd6731a-0088-46ee-991e-4acc433aadbe/WP0504ENG.pdf?MOD=AJPERES&CACHEID=4cd6731a-0088-46ee-991e-4acc433aadbe
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0504.

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Date of creation: 2005
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Handle: RePEc:tcb:wpaper:0504
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  1. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
  2. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," NBER Working Papers 9796, National Bureau of Economic Research, Inc.
  3. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2003. "Exchange Rate Pass-Through in Candidate Countries," CEPR Discussion Papers 3894, C.E.P.R. Discussion Papers.
  4. Felipe G. Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers Central Bank of Chile 152, Central Bank of Chile.
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  7. 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.
  8. Alain Ize & Eric Parrado, 2002. "Dollarization, Monetary Policy, and the Pass-Through," IMF Working Papers 02/188, International Monetary Fund.
  9. Cagri Sarikaya & Fethi Ogunc & Dilara Ece & Hakan Kara & Umit Ozlale, 2005. "Estimating Output Gap for the Turkish Economy," Working Papers 0503, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  10. Douglas Steel & Alan King, 2004. "Exchange Rate Pass-through: The Role of Regime Changes," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 301-322.
  11. 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.
  12. Alessandro Rebucci & Marco Rossi, 2004. "Measuring Disinflation Credibility in Emerging Markets; A Bayesian Approach with An Application to Turkey," IMF Working Papers 04/208, International Monetary Fund.
  13. Jonathan David Ostry & Peter Montiel, 1993. "Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries," IMF Working Papers 93/70, International Monetary Fund.
  14. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
  15. Hakan Berument, 2002. "Dšviz Kuru Hareketleri ve Enflasyon Dinamigi : TŸrkiye …rnegi," Working Papers 0202, Department of Economics, Bilkent University.
  16. Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
  17. 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.
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