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A Time-Varying Parameter VAR Investigation of the Exchange Rate Pass-Through in Turkey

Abdurrahman Nazif Çatık () and Barış Gök ()
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Abdurrahman Nazif Çatık: Corresponding Author Department of Economics, Ege University, Turkey Author-Name: Mehmet Karaçuka Author-Email: mehmet.karacuka@ege.edu.tr
Barış Gök: Department of Economics, Ege University, Turkey

Panoeconomicus, 2016, vol. 63, issue 5, 563-579

Abstract: The effects of exchange rate movements on price levels have im- portant implications to macroeconomic policies through the impacts on trade balance and inflation. In contrast to previous studies, we employ a VAR model with time-varying parameters to measure the magnitude of exchange rate pass-through (ERPT). The findings confirm the time-varying pattern in the ERPT, as the magnitude of ERPT has reached its maximum value during the 1994 financial crisis. The decline in the magnitude of ERPT has become more pronounced after the 2001 financial crisis as a result of the implementation of inflation targeting, which has shifted Turkey’s economy from a long lasting high inflationary phase to a low inflationary economic environment.

Keywords: Exchange rate pass-through; Wholesale prices; Consumer prices; Time-varying parameter VAR; Turkey (search for similar items in EconPapers)
JEL-codes: C32 E31 E42 E58 (search for similar items in EconPapers)
Date: 2016
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