Exchange Rate Pass-Through In The Turkish Economy: A Time Series Analysis For The 2009-2023 Period
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Keywords:
Exchange Rate Pass-Through, Consumer Price Index, Time Series AnalysisAbstract
This study examines the exchange rate pass-through (ERPT) effect on the Consumer Price Index (CPI) and Producer Price Index (PPI) in the Turkish economy, using monthly data from 2009:01 to 2023:11. The analysis employs the Residual Augmented Least Squares (RALS) methods to determine the impact of exchange rate fluctuations on domestic prices. The findings reveal that the exchange rate has a significant and strong effect on both CPI and PPI. A 1% increase in the exchange rate is found to raise CPI by approximately 0.71% and PPI by 1.13%. Additionally, oil prices are found to have a significant impact on both consumer and producer prices, while the output gap variable has a negative but relatively insignificant effect on both price indices. These results indicate that exchange rate fluctuations have substantial implications for price stability in the Turkish economy, emphasizing the importance of maintaining exchange rate stability. Policymakers should develop more effective and coordinated exchange rate policies to mitigate the adverse effects of exchange rate volatility on domestic prices. Furthermore, it is recommended to invest in alternative energy sources and improve energy efficiency to minimize the impact of energy costs on inflation.
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