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

  • Abdurrahman Nazif Çatık Ege University, Department of Economics, Turkey
  • Mehmet Karaçuka Ege University, Department of Economics, Turkey
  • Barış Gök Ege University, Department of Economics, Turkey

Abstract

The effects of exchange rate movements on price levels have important 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.


Key words: Exchange rate pass-through, Wholesale prices, Consumer prices, Time-varying parameter VAR, Turkey.
JEL: C32, E31, E42, E58.

How to Cite
Çatık A.N., Karaçuka M., & Gök B. (2016). A Time-Varying Parameter VAR Investigation of the Exchange Rate Pass-Through in Turkey. Panoeconomicus, 63(5), 563-579. doi:10.2298/PAN140307005C
Section
Original scientific paper