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Sources of Asymmetry and Non-linearity in Pass-Through of Exchange Rate and Import Price to Consumer Price Inflation for the Turkish Economy during Inflation Targeting Regime

Author

Listed:
  • Suleyman Hilmi Kal
  • Ferhat Arslaner
  • Nuran Arslaner

Abstract

Some recent studies indicate that exchange rate pass-through and import price pass-through is better characterized in a non-linear way. Having a better understanding of non-linearity of exchange rate pass-through (ERPT) and import prices pass-through (IPPT) under different conditions will contribute to the critical decisions on the proper role and magnitude of the exchange rate movements in the monetary policy. In this paper, we implement a state based non-linear method (Markov process) to identify, decompose, quantify and analyze the nonlinearities for both types of concurrent (same period) pass-through for the years between 2003 and 2014 for the Turkish economy. According to the results, both ERPT and IPPT are lower during appreciation and low volatility periods of nominal exchange rate. Even though ERPT does not differ depending on the level of business activity, IPPT is lower during contractionary periods compared to expansionary periods. The findings in this paper will allow for more nuanced monetary policy approaches to deal with pass-through stemming from different sources.

Suggested Citation

  • Suleyman Hilmi Kal & Ferhat Arslaner & Nuran Arslaner, 2015. "Sources of Asymmetry and Non-linearity in Pass-Through of Exchange Rate and Import Price to Consumer Price Inflation for the Turkish Economy during Inflation Targeting Regime," Working Papers 1530, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1530
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Süleyman Hilmi KAL, 2019. "2003-2018 Dönemi Türk Ekonomisinde Dolarizasyon, Kısa Vadeli Sermaye Hareketleri ve Kur Oynaklığı İlişkisi," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 69(2), pages 357-377, December.
    2. Pınar GÖKTAŞ, 2019. "Asymmetric Transition Effects of the Exchange Rate on Consumer Prices in Turkey," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(42).
    3. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.
    4. Aslihan Atabek & Dan Andrews & Rauf Gönenç, 2017. "Rebalancing Turkey’s growth by improving resource allocation and productivity in manufacturing," OECD Economics Department Working Papers 1367, OECD Publishing.
    5. Mr. Plamen K Iossifov & Xuan Fei, 2019. "Real Effective Exchange Rate and Trade Balance Adjustment: The Case of Turkey," IMF Working Papers 2019/131, International Monetary Fund.
    6. 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.
    7. Süleyman Hilmi Kal & Muhsin Çiftçi, 2022. "Market structure and exchange rate pass‐through in the Turkish manufacturing industry: Evidence from sectoral data," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 995-1016, October.

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    More about this item

    Keywords

    Asymmetry; Non-linearity; Inflation targeting; Pass-through of exchange rate and import price; Volatility; Markov switching regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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