The Degree of Currency Substitution and Exchange Rate Pass-Through

Volkan Ülke

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the effect of the degree of currency substitution on the exchange rate pass-through (ERPT) to import and domestic prices in Turkey, using monthly data between 1998 and 2013. The recursive interacted vector autoregressive (IVAR) specification of Towbin and Weber (2013) is employed, based on McCarthy’s (1999) distribution chain model. Currency substitution is treated as an interaction term in the IVAR specification. The empirical evidence suggests that high currency substitution increases the effect of ERPT to import and domestic prices.

Keywords: Exchange rate pass-through; currency substitution; inflation; interacted VAR. (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 F31 (search for similar items in EconPapers)
Date: 2015-09-15, Revised 2015-12-15
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:75633

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