EXCHANGE RATE REGIMES AND PASS‐THROUGH: EVIDENCE FROM THE TURKISH ECONOMY

Hakan Kara, Hande Kucuk (), Ümit Özlale, Burç Tuğer and Mustafa Yücel

Contemporary Economic Policy, 2007, vol. 25, issue 2, 206-225

Abstract: We seek to demonstrate the variations in the exchange rate pass‐through (ERPT) and identify the shift in the price‐setting behavior by placing the emphasis on the implemented exchange rate and monetary policy regimes. Having a history of several distinct monetary regimes, Turkey exhibits a genuine laboratory in this respect. Our empirical results reveal that the pass‐through from exchange rates to domestic prices has changed dramatically. We detect breaks in the pass‐through coefficients at three episodes, all of which coincide with a shift in monetary/exchange rate regime, lending support to the view that monetary and exchange rate regimes might be among the major determinants of the ERPT process. (JEL C51, E31, E58)

Date: 2007
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