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Inflation Targeting and Exchange Rate Pass-Through: The Turkish Experience

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  • Hakan Kara
  • Fethi ÃÄünç

Abstract

Using a vector autoregression model, we show that the pass-through from imported inflation to domestic inflation has weakened substantially and slowed after the adoption of inflation targeting in Turkey. We argue that this finding is due mainly to several featuresâsuch as enhanced credibility of the central bank, changing behavior of the exchange rate, and a shift in expectation formationâpossibly acquired by the implementation of a successful inflation-targeting regime. These observations suggest that adopting an inflation-targeting regime in itself may help to reduce exchange rate pass-through.

Suggested Citation

  • Hakan Kara & Fethi ÃÄünç, 2008. "Inflation Targeting and Exchange Rate Pass-Through: The Turkish Experience," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(6), pages 52-66, November.
    • Handle: RePEc:mes:emfitr:v:44:y:2008:i:6:p:52-66
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