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Exchange Rate Pass-Through in Turkey : It is Slow, but is it Really Low?

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  • Hakan Kara
  • Fethi Ogunc

Abstract

Using a vector auto-regression (VAR) setup, we estimate the pass-through from exchange rates and import prices to domestic inflation in Turkey, and produce some stylized facts regarding the degree and the adjustment speed of the pass-through on several price measures. Estimations for two distinct periods-before and after the adoption of floating exchange rate regime-yield both good and bad news. The good news is, our impulse responses confirm the common conjecture that pass-through has weakened and slowed down after the adoption of floating exchange rate regime. The bad news is, surprisingly low pass-through in recent years partly owes to the fact that exchange rate shocks were not persistent in direction. In other words, total pass-through might have been sizable had the economy been hit by one-sided shocks such as a persistent depreciation.

Suggested Citation

  • Hakan Kara & Fethi Ogunc, 2005. "Exchange Rate Pass-Through in Turkey : It is Slow, but is it Really Low?," Working Papers 0510, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:0510
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    References listed on IDEAS

    as
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    3. Mr. Marco Rossi & Mr. Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 2002/204, International Monetary Fund.
    4. Joseph E. Gagnon & Jane E. Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

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