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Exchange Rate Pass-Through in Turkey : It is Slow, but is it Really Low?

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  • Hakan Kara
  • Fethi Ogunc

Abstract

Using a vector auto-regression (VAR) setup, we estimate the pass-through from exchange rates and import prices to domestic inflation in Turkey, and produce some stylized facts regarding the degree and the adjustment speed of the pass-through on several price measures. Estimations for two distinct periods-before and after the adoption of floating exchange rate regime-yield both good and bad news. The good news is, our impulse responses confirm the common conjecture that pass-through has weakened and slowed down after the adoption of floating exchange rate regime. The bad news is, surprisingly low pass-through in recent years partly owes to the fact that exchange rate shocks were not persistent in direction. In other words, total pass-through might have been sizable had the economy been hit by one-sided shocks such as a persistent depreciation.

Suggested Citation

  • 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.
    • Handle: RePEc:tcb:wpaper:0510
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    References listed on IDEAS

    as
    1. 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.
    2. Mr. Marco Rossi & Mr. Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 2002/204, International Monetary Fund.
    3. Joseph E. Gagnon & Jane E. Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
    4. Fernandez, Roque B, 1981. "A Methodological Note on the Estimation of Time Series," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 471-476, August.
    Full references (including those not matched with items on IDEAS)

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