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The role of fiscal discipline on the exchange-rate pass-through during inflation targeting

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  • Hurşit Güneş
  • G. Acet Dönmez

Abstract

The purpose of this paper is to examine the role of fiscal discipline on the dynamics of exchange rate pass-through during inflation targeting. The present study analyses the Turkish economy for the period 2006–2022 by the use of threshold regression models. Our results suggest that fiscal discipline, measured by the IMF-defined primary budget balance as a share of GDP (which excludes the one-off government revenues balance such as privatization, interest earnings, and real estate sales) has a significant role in inflation dynamics. The degree of exchange rate pass-through is significantly lower and thus raises the effectiveness of inflation targeting when the government ensues strict fiscal discipline.

Suggested Citation

  • Hurşit Güneş & G. Acet Dönmez, 2024. "The role of fiscal discipline on the exchange-rate pass-through during inflation targeting," Applied Economics Letters, Taylor & Francis Journals, vol. 31(18), pages 1874-1880, October.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:18:p:1874-1880
    DOI: 10.1080/13504851.2023.2208819
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