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Pass-through effects of exchange rate on inflation: The case of Turkey

Year 2020, Volume: 2 Issue: 2, 71 - 75, 31.12.2020

Abstract

In this study, the effect on inflation will occur volatility in the exchange rate in Turkey is examined. ARDL Boundary Test is preferred for the 2010-2018 period. Domestic producer price index (PPI) were used as a independent variable and weighted nominal exchange rate (EXC), world crude oil prices (OIL), domestic money supply (M3) and the capacity utilization rate (CUR) were used as dependent variables. According to the results, 1% increase in nominal exchange rate, 0.11% increase in domestic producer price index and 1% increase in world oil prices increase the producer price index by 0.07%. Similarly, a 1% increase in M3 money supply, a 0.28% increase in the producer price index and a 1% increase in the capacity utilization rate lead to a 0.31% increase in the producer price index. It is also understood that all variables in the model increase inflation. However, according to the findings, the long-term effects of the exchange rate effect on domestic prices remain low. In addition, the lowest transition effect on producer prices is attributable to crude oil prices. The other two variables M3 and the capacity utilization rate have a stronger effect on domestic prices than the exchange rate effect. The other two variables M3 and the capacity utilization rate have a stronger effect on domestic prices than the exchange rate effect.

References

  • Alptekin,V.,Yılmaz,K.Ç and Taş,T.(2016).Döviz Kurundan Fiyatlara Geçiş Etkisi: Türkiye Örneği,Selçuk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi,35,1-9.
  • Altunöz,U.(2018).Investigating the Presence of Fisher Effect for the China Economy,Sosyoekonomi,26(35): 27-40.
  • Arı,A.(2010).Dalgalanma Korkusu ve Döviz Kuru Geçiş Etkisi,Journal of Yasar University,17(5): 2832‐2841.
  • Brown,R.L.,J.Durbin and J.M.Evans (1975).Techniques for Testing the Constancy of Regression Relations over Time,Journal of Royal Statistical Society,Series B,(3): 14-163.
  • Burstein,A.T.,Neves,J.C.and Rebelo,S.(2003).Distribution Costs and Real Exchange Rate Dynamics During ExchangeRate Based Stabilizations.Journal of Monetary Economics,(50): 1189-1214.
  • Carranza,L.,Galdon S. J. E.and Gomez,B. J.(2009).Exchange Rate and Inflation Dynamics in Dollarized Economies,Journal of Development Economics,89(1): 98-108
  • Dickey,D.A.W.A.Fuller (1981).Likelihood Ratio Statistics for AutoregressiveTime Series with a Unit Root”,Econometrica,49(4): 1057-1072.
  • Goldberg P.K.and M.M.Knetter,(1996).Goods Prices and Exchange Rates: What Have We Learned?,NBR Working Paper,no:5862.
  • Goldberg,L.S.and Campa,J.M.(2006).Distribution Margins,Imported Inputs,and the Sensitivity of the CPI to Exchange Rates,” NBER Working Paper,No:12121.
  • Hyder,Z.and Shah,S.(2004).Exchange Rate PassThrough to Domestic Prices in Pakistan,SBP Working Paper Series,No:5,1-19.
  • Ito,T.and SATO,K.(2007).Exchange Rate PassThrough and Domestic Inflation: A Comparison between East Asia and Latin American Countries,RIETI Discussion Paper Series,07-E-040.
  • Kara,H.and Öğünç,F.(2012).Döviz kuru ve ithalat fiyatlarının yurt içi fiyatlara etkisi,İktisat İşletme ve Finans,27(317): 09-28.
  • Kaygısız,A.D.(2018).Döviz Kuru Dalgalanmalarının Enflasyon Üzerindeki Geçiş Etkisi: Türkiye Örneği ,International Review of Economics and Management, 6(2): 11-137.
  • Laidler,E.W.D.(1993)The Demand for Money: Theories,Evidence and Problems,4.Edition, Harper Collins College Publishers,New York.
  • Menon,J.(1996).The degree and determinants of exchange rate pass through: market structure,nontariff barriers and multinational corporations.The Economic ,434-444.
  • Özdamar,G.(2015).Türkiye Ekonomisinde Döviz Kuru Geçiş Etkis: ARDL Sınır Testi Yaklaşımı Bulguları,Akdeniz İ.İ.B.F.Dergisi (32): 66-97
  • Peseran,M.H.,Shin,Y.and Smith,R.J.(2001).Bounds Testing Approaches to the Analysis of Level Relationships,Journal of Applied Econometrics,16(3): 289-326.
  • Peseran,M.H.and Shin Y.(1999).An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis,in S.Strom,A.Holly and P.Diamond (Eds.), Econometrics and Economic Theory in the 20th.Century: The Ragnar Frisch Centennial Symposium,Cambridge,Cambridge University Press,371-413.
  • Peseran,M.H.and Smith,R.(1998).Structural Analysis of Cointegrating VARs,Journal of Economic Surveys,12(5): 471-505
  • Peseran,M.H.and Shin,Y.(1995).An Autoregressive Distributed Lag ModellingApproach to Cointegration Analysis,Cambridge Working Papers in Economics,9514,Faculty of Economics,University of Cambridge.
  • Phillips,P.C.B and Perron,P.(1988).Testing for a Unit Root in Time Series Regression”,Biometrika,75(2): 335 346.
  • Sheefeni,J.and Ocran,M.(2014).Exchange Rate Pass Through to Domestic Prices in Namibia: Svar Evidence,Journal of Economic and Financial Sciences,7(1): 89-102.
  • Taylor,J.B.(2000).Low inflation,pass through,and the pricing power of firms,European EconomicReview,1389-1408
  • Woo,W.T.(1984).Exchange rates and the prices of nonfood,nonfuel products, Brookings Papers On Economic Activity.
  • Yang,J.(1997).Exchange Rate PassThrough in U.S.Manufacturing Industries,The Review of Economics and Statistics,97(1):95-104.

Pass-through effects of exchange rate on inflation: The case of Turkey

Year 2020, Volume: 2 Issue: 2, 71 - 75, 31.12.2020

Abstract

In this study, the effect on inflation will occur volatility in the exchange rate in Turkey is examined. ARDL Boundary Test is preferred for the 2010-2018 period. Domestic producer price index (PPI) were used as a independent variable and weighted nominal exchange rate (EXC), world crude oil prices (OIL), domestic money supply (M3) and the capacity utilization rate (CUR) were used as dependent variables. According to the results, 1% increase in nominal exchange rate, 0.11% increase in domestic producer price index and 1% increase in world oil prices increase the producer price index by 0.07%. Similarly, a 1% increase in M3 money supply, a 0.28% increase in the producer price index and a 1% increase in the capacity utilization rate lead to a 0.31% increase in the producer price index. It is also understood that all variables in the model increase inflation. However, according to the findings, the long-term effects of the exchange rate effect on domestic prices remain low. In addition, the lowest transition effect on producer prices is attributable to crude oil prices. The other two variables M3 and the capacity utilization rate have a stronger effect on domestic prices than the exchange rate effect. The other two variables M3 and the capacity utilization rate have a stronger effect on domestic prices than the exchange rate effect.

References

  • Alptekin,V.,Yılmaz,K.Ç and Taş,T.(2016).Döviz Kurundan Fiyatlara Geçiş Etkisi: Türkiye Örneği,Selçuk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi,35,1-9.
  • Altunöz,U.(2018).Investigating the Presence of Fisher Effect for the China Economy,Sosyoekonomi,26(35): 27-40.
  • Arı,A.(2010).Dalgalanma Korkusu ve Döviz Kuru Geçiş Etkisi,Journal of Yasar University,17(5): 2832‐2841.
  • Brown,R.L.,J.Durbin and J.M.Evans (1975).Techniques for Testing the Constancy of Regression Relations over Time,Journal of Royal Statistical Society,Series B,(3): 14-163.
  • Burstein,A.T.,Neves,J.C.and Rebelo,S.(2003).Distribution Costs and Real Exchange Rate Dynamics During ExchangeRate Based Stabilizations.Journal of Monetary Economics,(50): 1189-1214.
  • Carranza,L.,Galdon S. J. E.and Gomez,B. J.(2009).Exchange Rate and Inflation Dynamics in Dollarized Economies,Journal of Development Economics,89(1): 98-108
  • Dickey,D.A.W.A.Fuller (1981).Likelihood Ratio Statistics for AutoregressiveTime Series with a Unit Root”,Econometrica,49(4): 1057-1072.
  • Goldberg P.K.and M.M.Knetter,(1996).Goods Prices and Exchange Rates: What Have We Learned?,NBR Working Paper,no:5862.
  • Goldberg,L.S.and Campa,J.M.(2006).Distribution Margins,Imported Inputs,and the Sensitivity of the CPI to Exchange Rates,” NBER Working Paper,No:12121.
  • Hyder,Z.and Shah,S.(2004).Exchange Rate PassThrough to Domestic Prices in Pakistan,SBP Working Paper Series,No:5,1-19.
  • Ito,T.and SATO,K.(2007).Exchange Rate PassThrough and Domestic Inflation: A Comparison between East Asia and Latin American Countries,RIETI Discussion Paper Series,07-E-040.
  • Kara,H.and Öğünç,F.(2012).Döviz kuru ve ithalat fiyatlarının yurt içi fiyatlara etkisi,İktisat İşletme ve Finans,27(317): 09-28.
  • Kaygısız,A.D.(2018).Döviz Kuru Dalgalanmalarının Enflasyon Üzerindeki Geçiş Etkisi: Türkiye Örneği ,International Review of Economics and Management, 6(2): 11-137.
  • Laidler,E.W.D.(1993)The Demand for Money: Theories,Evidence and Problems,4.Edition, Harper Collins College Publishers,New York.
  • Menon,J.(1996).The degree and determinants of exchange rate pass through: market structure,nontariff barriers and multinational corporations.The Economic ,434-444.
  • Özdamar,G.(2015).Türkiye Ekonomisinde Döviz Kuru Geçiş Etkis: ARDL Sınır Testi Yaklaşımı Bulguları,Akdeniz İ.İ.B.F.Dergisi (32): 66-97
  • Peseran,M.H.,Shin,Y.and Smith,R.J.(2001).Bounds Testing Approaches to the Analysis of Level Relationships,Journal of Applied Econometrics,16(3): 289-326.
  • Peseran,M.H.and Shin Y.(1999).An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis,in S.Strom,A.Holly and P.Diamond (Eds.), Econometrics and Economic Theory in the 20th.Century: The Ragnar Frisch Centennial Symposium,Cambridge,Cambridge University Press,371-413.
  • Peseran,M.H.and Smith,R.(1998).Structural Analysis of Cointegrating VARs,Journal of Economic Surveys,12(5): 471-505
  • Peseran,M.H.and Shin,Y.(1995).An Autoregressive Distributed Lag ModellingApproach to Cointegration Analysis,Cambridge Working Papers in Economics,9514,Faculty of Economics,University of Cambridge.
  • Phillips,P.C.B and Perron,P.(1988).Testing for a Unit Root in Time Series Regression”,Biometrika,75(2): 335 346.
  • Sheefeni,J.and Ocran,M.(2014).Exchange Rate Pass Through to Domestic Prices in Namibia: Svar Evidence,Journal of Economic and Financial Sciences,7(1): 89-102.
  • Taylor,J.B.(2000).Low inflation,pass through,and the pricing power of firms,European EconomicReview,1389-1408
  • Woo,W.T.(1984).Exchange rates and the prices of nonfood,nonfuel products, Brookings Papers On Economic Activity.
  • Yang,J.(1997).Exchange Rate PassThrough in U.S.Manufacturing Industries,The Review of Economics and Statistics,97(1):95-104.
There are 25 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Research Articles
Authors

Utku Altunöz 0000-0002-0232-3108

Publication Date December 31, 2020
Submission Date March 18, 2020
Published in Issue Year 2020 Volume: 2 Issue: 2

Cite

APA Altunöz, U. (2020). Pass-through effects of exchange rate on inflation: The case of Turkey. Journal of Ekonomi, 2(2), 71-75.

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