An Investigation of Asymmetries in Exchange Rate Pass-Through to Domestic Prices

Fela Özbey ()
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Fela Özbey: Çukurova University

A chapter in Advances in Econometrics, Operational Research, Data Science and Actuarial Studies, 2022, pp 207-219 from Springer

Abstract: Abstract After the 2000–2001 financial crisis in Turkey, a strong reform program was initiated involving the enactment of the floating exchange rate regime in February 2001 and the adoption of inflation targeting as monetary policy in January 2002. This study aims to analyze the dynamics of exchange rate pass-through (ERPT) for the inflation-targeting period in Turkey by estimating the magnitudes of the short-run and long-run pass-through and by testing whether these magnitudes differ in contexts of depreciations and appreciations. To this end, the nonlinear autoregressive distributed lag (NARDL) approach is used. Since the bounds-testing procedure does not allow for stochastic seasonality or nonseasonal integration orders higher than one, to check the suitability of the series for this methodology, both seasonal and nonseasonal unit root tests are performed. The empirical results reveal asymmetry in the ERPT in both the short run and long run. In the long run, whereas appreciations of the domestic currency are not transmitted to domestic prices, the pass-through of depreciation is 43%. In the short run, the pass-through of appreciations is realized only in the current month and is 10.5%. The short-run pass-through of depreciations fluctuates over seven periods, and the total pass-through is approximately 3.5%.

Keywords: Exchange Rate Pass-through; Nonlinear Autoregressive Distributed Lag Model; Asymmetric Level Relationships; Seasonal Unit Root Test (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-030-85254-2_12

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DOI: 10.1007/978-3-030-85254-2_12

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