Exchange Rate Pass-Through on the Domestic Prices: Evidence from the Turkish Economy

Gizem Bas and Mehmet Kara
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Gizem Bas: Res. Assist., Hatay Mustafa Kemal Universtiy, FEAS, Department of Economics, gizemercelik@mku.edu.tr., https://orcid.org/0000-0002-7667-2992.
Mehmet Kara: Professor, Hatay Mustafa Kemal University, FEAS, Department of Economics, mehmetkara@mku.edu.tr., https://orcid.org/0000-0001-5572-2404.

Isletme ve Iktisat Calismalari Dergisi, 2020, vol. 8, issue 2, 115-125

Abstract: The understanding of the effects of the changes in exchange rates is quite significant for monetary policy implications. Particularly, for developing countries such as Turkey, price instability become a strong factor that makes difficult economic development. Hence, policy implications have crucial roles in the economic activities. The objective of this study is to investigate the pass-through of exchange rate to domestic prices in Turkey for the period of 2010:Q1-2020:Q1. In this context, nominal exchange rate, total import price index, real gross domestic product and consumer price index variables were employed. In the analysis, firstly ADF and KPSS unit root tests are performed. After the variables’ order of stationarity is detected, ARDL method is applied. Based on the analysis results obtained, it is found that there is a cointegration relationship between the variables. Exchange rate and import prices have a significant effects on domestic prices for both the long and the short-term. Accordingly the long-term relations, if nominal exchange rate increases by 1%, inflation also increases by 0.61%. In addition, it is concluded that 1% increase in total import price index leads 0.46% increase in inflation.

Keywords: Pass Through Effect; Exchange Rate; Turkey (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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