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A Time-Varying Parameter VAR Investigation of the Exchange Rate Pass-Through in Turkey

Author

Listed:
  • Abdurrahman Nazif Çatık
  • Mehmet Karaçuka
  • Barış Gök

Abstract

The effects of exchange rate movements on price levels have important implications to macroeconomic policies through the impacts on trade balance and inflation. In contrast to previous studies, we employ a VAR model with time-varying parameters to measure the magnitude of exchange rate pass-through (ERPT). The findings confirm the time-varying pattern in the ERPT, as the magnitude of ERPT has reached its maximum value during the 1994 financial crisis. The decline in the magnitude of ERPT has become more pronounced after the 2001 financial crisis as a result of the implementation of inflation targeting, which has shifted Turkey’s economy from a long lasting high inflationary phase to a low inflationary economic environment. Key words: Exchange rate pass-through, Wholesale prices, Consumer prices, Time-varying parameter VAR, Turkey.JEL: C32, E31, E42, E58.

Suggested Citation

  • 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.
    • Handle: RePEc:voj:journl:v:63:y:2016:i:5:p:563-579:id:4
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    Keywords

    Exchange rate pass-through; Wholesale prices; Consumer prices; Time-varying parameter VAR; Turkey;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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