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Exchange Rate Pass-Through in Turkey : Looking for Asymmetries

Author

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  • Elif C. Arbatli

Abstract

This paper uses the VAR framework introduced in McCarthy (1999) to investigate the nature and extent of pass-through to prices in Turkey. Furthermore, Threshold VAR (TVAR) models are used to assess the possibility of asymmetries in the pass-through. Annual change in the industrial production index, exchange rate and inflation as well as deviation of the change in annual exchange rate from its sample mean are used as threshold variables. The latter variable is used to capture asymmetric effects of small versus big changes in exchange rates on the extent of pass-through. Estimating several TVAR models imply significant asymmetries in the relationship between exchange rate and inflation as measured by Wholesale and Consumer Price Indices. More specifically, we find that pass-through to prices is lower during significant economic contractions, periods with higher exchange rate depreciation and periods with lower inflation. Evidence for asymmetries arise from the magnitude of the change in exchange rates is weaker and quantitatively not very significant.

Suggested Citation

  • Elif C. Arbatli, 2003. "Exchange Rate Pass-Through in Turkey : Looking for Asymmetries," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(2), pages 85-124.
    • Handle: RePEc:tcb:cebare:v:3:y:2003:i:2:p:85-124
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2003/Volume+3-2/
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    Citations

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    Cited by:

    1. Hakan Kara & Fethi Ogunc, 2011. "Doviz Kuru ve Ithalat Fiyatlarinin Enflasyona Etkisi," CBT Research Notes in Economics 1114, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Ahmet Benlialper & Hasan Cömert, 2016. "Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1553-1580.
    3. Levent, Korap, 2007. "Impact of Exchange Rate Changes on Domestic Inflation: he Turkish Experience," MPRA Paper 19589, University Library of Munich, Germany.
    4. Hakan Kara & Hande Kucuk Tuger & Umit Ozlale & Burc Tuger & Devrim Yavuz & Eray M. Yucel, 2005. "Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?," Working Papers 0504, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. Cengiz TUNC & Mustafa Kilinc, 2018. "Exchange Rate Pass‐Through In A Small Open Economy: A Structural Var Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 410-422, October.
    6. Gayaker, Savas & Ağaslan, Erkan & Alkan, Buket & Çiçek, Serkan, 2021. "The deterioration in credibility, destabilization of exchange rate and the rise in exchange rate pass-through in Turkey," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 571-587.
    7. Tunç, Cengiz, 2017. "A Survey on Exchange Rate Pass through in Emerging Markets," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 2(3), pages 205-233, July-Sept.
    8. Abdurrahman Nazif Çatık & Mehmet Karaçuka & Barış Gök, 2016. "A Time-Varying Parameter VAR Investigation of the Exchange Rate Pass-Through in Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(5), pages 563-579, December.
    9. Ülke, Volkan, 2015. "The Degree of Currency Substitution and Exchange Rate Pass-Through," MPRA Paper 75633, University Library of Munich, Germany, revised 15 Dec 2015.
    10. Evren Erdogan Cosar & Sevim Kosem & Cagri Sarikaya, 2013. "Do We Really Need Filters In Estimating Output Gap? : Evidence From Turkey," Working Papers 1333, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    11. Dincer Dedeoglu & Huseyin Kaya, 2015. "Model Belirsizligi Altinda Doviz Kurunun Enflasyona Etkisi," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 15(2), pages 79-93.
    12. Caglar Yunculer, 2011. "Pass-Through of External Factors into Price Indicators In Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 11(2), pages 71-84.
    13. ?lyas ??klar & Merve Kocaman & Sevcan Kapkara, 2017. "Exchange Rate Pass-Through to Domestic Prices: The Turkish Case (2002-2014)," Business and Economic Research, Macrothink Institute, vol. 7(2), pages 202-211, December.
    14. Ari, Ali & Yılmaz, Ahmet & Cergibozan, Raif & Ozcan, Yunus, 2013. "The Inflation Dynamics of the Turkish Economy in 1990-2011 Period," MPRA Paper 95675, University Library of Munich, Germany.
    15. Nazli Toraganli, 2010. "Exchange Rate Pass-Through and Exposure in the Turkish Economy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 10(1), pages 47-69.
    16. Meryem Türel & Ayhan Orhan, 2022. "Asymmetries in Exchange Rate Pass-through in Turkey: A Threshold VAR Analysis," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(3-4), pages 276-295.

    More about this item

    Keywords

    Exchange Rate Pass-Through; Asymmetries; Threshold Vector Autoregressions (TVAR);
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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