IDEAS home Printed from https://ideas.repec.org/a/ist/ekoist/v0y2024i41p161-171.html
   My bibliography  Save this article

Evaluation of Türkiye’s Domestic Prices and Exchange Rate Relationship with State Space Models

Author

Listed:
  • Fikriye Ceren Bostancı

    (Kocaeli Üniversitesi, Siyasal Bilgiler Fakültesi, İktisat Bölümü, Kocaeli, Türkiye)

  • Selçuk Koç

    (Kocaeli Üniversitesi, Siyasal Bilgiler Fakültesi, İktisat Bölümü, Kocaeli, Türkiye)

Abstract

In this article, an economic analysis of Türkiye is discussed to introduce State Space Models. State Space Models offer a preferred modelling method as they have flexible structures. As an economic application of this study, an analysis is conducted with Türkiye’s monthly Consumer Price Index (CPI), USD/TRY and EUR/TRY for the period 2005-2024. In the first stage, a modelling approach with only explanatory variables is adopted. Subsequently, in addition to the models with only explanatory variables, a dummy variable was added to be valid from January 2023 onwards. Deterministic and stochastic features were considered in the analysis, and these different model structures were estimated. As a result, it is concluded that the best model structure is the Stochastic Level and Explanatory Variable-Dummy Variable model for the USD/TRY and EUR/TRY. The results show that the effects of USD/TRY and EUR/TRY on the CPI are similar and positive. However, the CPI is found to be relatively less sensitive to fluctuations in the USD/TRY and EUR/TRY. In addition, the use of a dummy variable in the model allowed the comparison of domestic prices between the two periods. Accordingly, it is inferred that domestic prices in the first month of 2023 and thereafter are lower than those in the previous periods. These findings have important implications for a better understanding of the relationship between exchange rates and domestic prices in Türkiye and contribute to the literature in terms of demonstrating the use of State Space Models in an economic application.

Suggested Citation

  • Fikriye Ceren Bostancı & Selçuk Koç, 2024. "Evaluation of Türkiye’s Domestic Prices and Exchange Rate Relationship with State Space Models," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(41), pages 161-171, December.
    • Handle: RePEc:ist:ekoist:v:0:y:2024:i:41:p:161-171
    DOI: 10.26650/ekoist.2024.41.1576282
    as

    Download full text from publisher

    File URL: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/CD9EAF39709D42B4B85CC300A3506C58
    Download Restriction: no
    File URL: https://iupress.istanbul.edu.tr/tr/journal/ekoist/article/durum-uzayi-modelleri-ile-turkiyenin-yurtici-fiyatlari-ve-doviz-kuru-iliskisinin-degerlendirilmesi
    Download Restriction: no
    File URL: https://libkey.io/10.26650/ekoist.2024.41.1576282?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    3. Durbin, James & Koopman, Siem Jan, 2012. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, edition 2, number 9780199641178, Decembrie.
    4. Alessandra Amitrano & Paul De Grauwe & Giuseppe Tullio, 1997. "Why Has Inflation Remained So Low After the Large Exchange Rate Depreciations of 1992?," Journal of Common Market Studies, Wiley Blackwell, vol. 35(3), pages 329-346, September.
    5. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
    6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kyriakos Emmanouilidis & Christos Karpetis, 2020. "The Defense–Growth Nexus: A Review of Time Series Methods and Empirical Results," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(1), pages 86-104, January.
    2. Zheng, Li & Abbasi, Kashif Raza & Salem, Sultan & Irfan, Muhammad & Alvarado, Rafael & Lv, Kangjuan, 2022. "How technological innovation and institutional quality affect sectoral energy consumption in Pakistan? Fresh policy insights from novel econometric approach," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    3. Jose Perez-Montiel & Carles Manera Erbina, 2019. "Investment Sustained by Consumption: A Linear and Nonlinear Time Series Analysis," Sustainability, MDPI, vol. 11(16), pages 1-15, August.
    4. Sheng‐Tun Li & Kuei‐Chen Chiu & Chien‐Chang Wu, 2023. "Apply big data analytics for forecasting the prices of precious metals futures to construct a hedging strategy for industrial material procurement," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 942-959, March.
    5. Athanasia Stylianou Kalaitzi, 2024. "Skill intensity in manufacturing exports: Do basic, technology-intensive or differentiated exports cause growth in Kuwait?," Economic Change and Restructuring, Springer, vol. 57(5), pages 1-30, October.
    6. Man-Keun Kim & Kangil Lee, 2015. "Dynamic Interactions between Carbon and Energy Prices in the U.S. Regional Greenhouse Gas Initiative," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 494-501.
    7. Zhang, Jinjun & Abbasi, Kashif Raza & Hussain, Khadim & Akram, Sabahat & Alvarado, Rafael & Almulhim, Abdulaziz I., 2022. "Another perspective towards energy consumption factors in Pakistan: Fresh policy insights from novel methodological framework," Energy, Elsevier, vol. 249(C).
    8. Hanan Naser, 2015. "Can Nuclear Energy Stimulates Economic Growth? Evidence from Highly Industrialised Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 164-173.
    9. Zhang, Wei & Yang, Shuyun, 2013. "The influence of energy consumption of China on its real GDP from aggregated and disaggregated viewpoints," Energy Policy, Elsevier, vol. 57(C), pages 76-81.
    10. Amiri, Arshia & Zibaei, Mansour, 2012. "Granger causality between energy use and economic growth in France with using geostatistical models," MPRA Paper 36357, University Library of Munich, Germany.
    11. Ali, Adnan & Ramakrishnan, Suresh & Faisal,, 2022. "Financial development and natural resources. Is there a stock market resource curse?," Resources Policy, Elsevier, vol. 75(C).
    12. Ali, Adnan & Ramakrishnan, Suresh & Faisal, Faisal & Bazhair, Ayman Hassan & Sulimany, Hamid Ghazi H & Rahman, Sami Ur, 2024. "Does escaping the natural resource curse complement evading the financial resource curse too? Empirical evidence from Indonesia," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 539-555.
    13. Xie, Zixiong & Chen, Shyh-Wei, 2019. "Exchange rates and fundamentals: A bootstrap panel data analysis," Economic Modelling, Elsevier, vol. 78(C), pages 209-224.
    14. Lin, Boqiang & Wesseh Jr., Presley K., 2014. "Energy consumption and economic growth in South Africa reexamined: A nonparametric testing apporach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 840-850.
    15. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    16. Dambar Uprety, 2017. "The Impact of Remittances on Economic Growth in Nepal," Journal of Development Innovations, KarmaQuest International, vol. 1(1), pages 114-134, February.
    17. Mourad Zmami & Ousama Ben-Salha, 2019. "Does Oil Price Drive World Food Prices? Evidence from Linear and Nonlinear ARDL Modeling," Economies, MDPI, vol. 7(1), pages 1-18, February.
    18. Tahir, Suleiman & Adegbite, Emmanuel & Guney, Yilmaz, 2017. "An international examination of the economic effectiveness of banking recapitalization," International Business Review, Elsevier, vol. 26(3), pages 417-434.
    19. Shafiullah, Muhammad & Miah, Mohammad Dulal & Alam, Md Samsul & Atif, Muhammad, 2021. "Does economic policy uncertainty affect renewable energy consumption?," Renewable Energy, Elsevier, vol. 179(C), pages 1500-1521.
    20. Zheng Fang & Jiang Yu, 2020. "The role of human capital in energy-growth nexus: an international evidence," Empirical Economics, Springer, vol. 58(3), pages 1225-1247, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ist:ekoist:v:0:y:2024:i:41:p:161-171. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Istanbul University Press Operational Team (Ertuğrul YAŞAR) (email available below). General contact details of provider: https://edirc.repec.org/data/ifisttr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.