Research Article


DOI :10.26650/ISTJECON2022-1210198   IUP :10.26650/ISTJECON2022-1210198    Full Text (PDF)

Does Exchange Rate Pass-Through Change Over Time in Türkiye?

Mustafa ÇakırAhmet Ekrem Kaya

This paper investigates whether the effects of exchange rate pass-through on general and disaggregated consumer prices change over time in Türkiye. Using the time-varying Granger causality (TVGC) test, the study examines the causality relationship between the US dollar and the consumer price index (CPI) over the 1986M01-2022M06 period and then the causality relationship between a US dollar and Euro currency basket and 12 main expenditure groups over the 2003M01- 2022M06 period. According to the findings, the effects of exchange rate pass-through (ERPT) on the CPI and major groups of consumer expenditures decreased based on the floating exchange rate and explicit inflation-targeting regime in Türkiye. The findings obtained from the TVGC test showed This paper investigates whether the effects of exchange rate pass-through on general and disaggregated consumer prices change over time in Türkiye. Using the time-varying Granger causality (TVGC) test, the study examines the causality relationship between the US dollar and the consumer price index (CPI) over the 1986M01-2022M06 period and then the causality relationship between a US dollar and Euro currency basket and 12 main expenditure groups over the 2003M01- 2022M06 period. According to the findings, the effects of exchange rate pass-through (ERPT) on the CPI and major groups of consumer expenditures decreased based on the floating exchange rate and explicit inflation-targeting regime in Türkiye. The findings obtained from the TVGC test showed 

JEL Classification : C22 , E31 , F31
DOI :10.26650/ISTJECON2022-1210198   IUP :10.26650/ISTJECON2022-1210198    Full Text (PDF)

Türkiye’de Döviz Kuru Geçişkenliği Zamanla Değişiyor mu?

Mustafa ÇakırAhmet Ekrem Kaya

Bu çalışma, Türkiye’de döviz kuru geçişkenliğinin genel ve ana harcama tüketici fiyatları üzerindeki etkilerinin zaman içinde değişip değişmediğini incelemektedir. Çalışma, zamanla-değişen Granger nedensellik (TVGC) testini kullanarak, 1986M01- 2022M06 döneminde ABD doları ile Tüketici Fiyat Endeksi (TÜFE) arasındaki nedensellik ilişkisini ve ardından 2003M01-2022M06 döneminde sepet kur (ABD doları ve Avro) ile 12 ana harcama grubu arasındaki nedensellik ilişkisini incelemektedir. Bulgulara göre, Türkiye’de uygulanan dalgalı döviz kuru ve açık enflasyon hedeflemesi rejimine bağlı olarak döviz kuru geçişkenliğinin (ERPT) TÜFE ve ana harcama grupları üzerindeki etkileri azalmıştır. TVGC testi ile elde edilen bulgular, ABD doları ile TÜFE arasında çift yönlü Granger nedensellik ve sepet kurdan ana harcama gruplarına doğru tek yönlü Granger nedensellik olduğunu göstermiştir. Ayrıca elde edilen bulgular, TÜFE’ye ilişkin ERPT’nin ulusal ve uluslararası krizlerde daha belirgin hale geldiğini ve TÜFE beklentilerindeki bozulma nedeniyle yüksek ve kalıcı seyrettiğini göstermektedir.

JEL Classification : C22 , E31 , F31

EXTENDED ABSTRACT


Exchange rates are one of the fundamental factors affecting consumer prices. Recent empirical studies have shown a decrease in the exchange rate pass-through (ERPT) in countries that adopt inflation-targeting regimes (Devereux and Yetman, 2003; Saiki, 2004; Nogueira, 2006). Evidence is also found in the literature showing the ERPT on consumer prices to slow down and gradually decrease in economies that switch to a floating exchange rate regime (Kara, Küçük-Tuğer, Özlale, Tuğer and Yücel, 2007; Darvas, 2001).

Türkiye is one of the emerging economies to have implemented policies for liberalizing capital markets after the 1980s, and this has led to fluctuations in its exchange rate. After a long history of high inflation, Türkiye started to implement a free-floating exchange rate and inflation-targeting regime in 2006 and reduced its inflation rates to single digits in the following decade (Kara and Öǧünç, 2008). While many studies have investigated the ERPT, only a few have empirically analyzed whether the ERPT changes over time in Türkiye (Kara et al., 2007). Hence it remains essential to examine whether the Granger causality between exchange rate and consumer price index (CPI) changes over time. Thus, this paper examines whether the ERPT effect on aggregate and disaggregated consumer prices changes over time in Türkiye using the time-varying Granger causality (TVGC) test proposed by Shi, Phillips, and Hurn (2018, 2020). This method adds a time dimension to the Granger causality analysis, providing an opportunity to periodically analyze the causal relationship between the exchange rate and consumer prices. The study examines the causality relationships between the US dollar and CPI over the 1986M01-2022M06 period and between the US dollar and euro currency basket and the 12 major groups of consumer expenditures over the 2003M01-2022M06 period. 

The empirical results show a bidirectional Granger causality to exist between the US dollar and the CPI, while a unidirectional Granger causality occurs from the currency basket to the indexes for the major groups of consumer expenditures. The bidirectional Granger causality relationship between the US dollar and CPI and the unidirectional Granger causality relationship from the currency basket to the indexes for the major groups of consumer expenditures appear stronger for housing, transport, and household equipment in particular. The relatively low causality with food and non-alcoholic beverages may be due to the more significant contribution to this sector from domestic resources, which are relatively less affected by external and exchange rate shocks. When considering a time-varying Granger causality relationship, Granger causality is seen to occur from the US dollar to the CPI during the 1994 and 2001 crises in particular, as well as during the exchange rate shock experienced in 2018. More specifically, the results obtained using the forward expanding (FE), the rolling (RO), and the recursive evolving (RE)windows align with the literature stating the free-floating exchange rate regime and the inflation targeting regime to both reduce the ERPT, thus empirically verifying the that the ERPT effect on consumer prices changes over time.

When considering the causality relationship between the currency basket and the indexes on the major groups of consumer expenditures, a Granger causality is found going from the currency basket to food prices, starting with and continuing after the 2018 exchange rate shock. In addition to the exchange rate shock, a Granger causality from the currency basket to house prices was also detected for the 2008 global financial crisis. The ERPT on household equipment is seen to be in question for different periods that require sectoral analysis. Periods with ERPT on transport coincide with global oil prices and exchange rate shocks. The Granger causality from the exchange rate (the US dollar and currency basket) to the aggregate and disaggregated consumer prices was observed to become evident during national and international crisis periods and to have remained high and persistent following the 2018 exchange rate shock due to the deterioration in CPI expectations. 


PDF View

References

  • Alptekin, V., Yılmaz, K. Ç., & Taş, T. (2016). Döviz kurundan fiyatlara geçiş etkisi: Türkiye örneği. Selçuk Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 35, 1-9. google scholar
  • Arora, V., & Shi, S. (2016). Energy consumption and economic growth in the United States. Applied Economics 48 (39), 3763-3773. google scholar
  • Baş, G., & Kara, M. (2020). Exchange rate pass-through on the domestic prices: Evidence from the Turkish economy. İşletme ve İktisat Çalışmaları Dergisi, 8(2), 115-125. google scholar
  • Berument, H. (2002). Döviz kuru hareketleri ve enflasyon dinamiği: Türkiye örneği. Bilkent University Department of Economics Working Paper No. 02-02, 2002. google scholar
  • Çatık, A. N. & Güçlü, M. (2012) Measuring exchange rate pass-through under structural changes: The case of Turkey, International Journal of Statistics and Economics, 8, S12, 21-42. google scholar
  • Damar, A. O. (2010). Türkiye’de döviz kurundan fiyatlara geçiş etkisinin incelenmesi. TCMB Piyasalar Genel Müdürlüğü Uzmanlık Yeterlik Tezi (ss. 1 - 80). google scholar
  • Darvas, Z. (2001). Exchange rate pass-through and real exchange rate in EU candidate countries. Economic Research Centre of the Deutsche Bundesbank Discussion Paper No. 10/01, 2001. google scholar
  • Devereux, M.B., & J. Yetman. (2003). Price-setting and exchange rate pass-through: Theory and evidence. Paper presented at the Price Adjustments and Monetary Policy Conference, Bank of Canada, Ottawa, Ontario, November. google scholar
  • Dickey, D.A., & Fuller, W.A., (1981). Likelihood ratio statistics for autoregressive time series with a unit root author. Econometrica 49, 1057-1072. google scholar
  • Doğan, B. Ş. (2013). Asymmetric behavior of the exchange rate pass-through to manufacturing prices in Turkey. Emerging Markets Finance & Trade, 49(3), 35-47. https://doi.org/10.2753/ REE1540-496X490303 google scholar
  • Emek, Ö., Düşünceli, F., & Doru, Ö. (2021). Türkiye’de yurt içi üretici ve tüketici fiyatları üzerindeki döviz kuru geçişkenliğinin incelenmesi. İstanbul İktisat Dergisi, 71(1), 163-190. google scholar
  • Ersel, H., & Özatay, F. (2008). Fiscal dominance and inflation targeting: Lessons from Turkey. Emerging Markets Finance & Trade, 44(6), 38-51. https://doi.org/10.2753/REE1540-496X440603 google scholar
  • Feldkircher, M., & Siklos, P. L. (2019). Global inflation dynamics and inflation expectations. International Review of Economics & Finance, 64, 217-241. https://doi.org/10.1016/J. IREF.2019.06.004 google scholar
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424. https://doi.org/10.2307/1912791 google scholar
  • Granger, C. W. J. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1-2), 199-211. https://doi.org/10.1016/0304-4076(88)90045-0 google scholar
  • Gül, E., & Ekinci, A. (2006). The causal relationship between exchange rates and inflation in Turkey:1984-2003. Anadolu University Journal of Social Sciences, 6(1), 91-106. google scholar
  • Ha, J., Marc Stocker, M., & Yilmazkuday, H. (2020). Inflation and exchange rate pass-through. Journal of International Money and Finance, 105, 102187. https://doi.org/10.1016/J. JIMONFIN.2020.102187 google scholar
  • Jiang, J., & Kim, D. (2013). Exchange rate pass-through to inflation in China. Economic Modelling, 33, 900-912. https://doi.org/10.1016/J.ECONMOD.2013.05.021 google scholar
  • Jimenez-Rodriguez, R., & Morales-Zumaquero, A. (2020). BRICS: How important is the exchange rate pass-through? The World Economy, 43(3), 781-793. google scholar
  • Kara, H., Küçük-Tuğer, H., Özlale, Ü., Tuğer, B., & Yücel, E. M. (2007). Exchange rate regimes and passthrough: Evidence from the Turkish economy. Contemporary Economic Policy, 25(2), 206-225. google scholar
  • Kara, H., & Öğünç, F. (2008). Inflation targeting and exchange rate pass- through: The Turkish experience. Emerging Markets Finance and Trade, 44(6), 52-66. https://doi.org/10.2753/ REE1540-496X440604 google scholar
  • Kara, H., & Öğünç, F. (2011). Döviz kuru ve ithalat fiyatlarının enflasyona etkisi. Türkiye Cumhuriyet Merkez Bankası Ekonomi Notları (C. 14). google scholar
  • Korkmaz, S., & Bayır, M. (2015). Döviz kuru dalgalanmalarının yurtiçi fiyatlara etkisi. Niğde Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 8(3), 13-29. google scholar
  • Kwapil, C., & Scharler, J. (2010). Interest rate pass-through, monetary policy rules and macroeconomic stability. Journal of International Money and Finance, 29(2), 236-251. google scholar
  • Leigh, D., & Rossi, M. (2002). Exchange rate pass-through in Turkey. IMF Working Papers (C. 02, Issue 204, s. 1). google scholar
  • McFarlane, L. (2002). Consumer price inflation and exchange rate pass through in Jamaica. Bank of Jamaica. Erişim:21 Kasım 2022 google scholar
  • Nogueira, R.P., Jr. (2006). Inflation targeting and the role of exchange rate pass-through. University of Kent Discussion Paper 0602, Kent. google scholar
  • Özata, E. (2019). Türkiye’de döviz kuru geçişkenliğinin asimetrik analizi. Eskişehir Osmangazi Üniversitesi Sosyal Bilimler Dergisi, 20(2), 213-232. https://doi.org/10.17494/ogusbd.672820 google scholar
  • Philips, P.C.B., & Perron, P., (1988). Testing for a unit root in time series regression. Biometrika Trust 75, 335-346. https://doi.org/10.1093/poq/nf1045. google scholar
  • Phillips, P. C. B., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043-1078. google scholar
  • Rittenberg, L. (2007). Exchange rate policy and price level changes: Casualty tests for Turkey in the post-liberalisation period. TheJournal of Development Studies, 29(2), 245-259. google scholar
  • Saiki, A. (2004). The Change in inflation persistence and exchange rate pass-through for inflation targeting countries. Ph.D. dissertation, International Business School, Brandeis University, Waltham, MA. google scholar
  • Shi, S., Hurn, S., & Phillips, P. C. B. (2020). Causal change detection in possibly integrated systems: Revisiting the money-income relationship. Journal of Financial Econometrics, 18(1), 158-180. google scholar
  • Shi, S., Phillips, P. C. B., & Hurn, S. (2018). Change detection and the causal impact of the Yield Curve. Journal of Time Series Analysis, 39(6), 966-987. https://doi.org/10.1111/JTSA.12427 google scholar
  • Soybilgen, B., & Yazgan, E. (2017). An evaluation of inflation expectations in Turkey. Central Bank Review, 17(1), 31-38. https://doi.org/10.1016/J.CBREV.2017.01.001 google scholar
  • Swanson, N. R. (1998). Money and output viewed through a rolling window. Journal of Monetary Economics, 41(3), 455-474. google scholar
  • Şeker, H. (2022). Türkiye’de kur- enflasyon geçişkenliği üzerine ekonometrik bir analiz. Finans Ekonomi ve Sosyal Araştırmalar Dergisi, 7(1), 131-142. google scholar
  • Thoma, M. A. (1994). Subsample instability and asymmetries in money-income causality. Journal of Econometrics, 64(1-2), 279-306. https://doi.org/10.1016/0304-4076(94)90066-3 google scholar
  • Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1-2), 225-250. https://doi.org/10.1016/0304-4076(94)01616-8 google scholar
  • TÜİK (2022). Tüketici Fiyat Endeksi, Haziran 2022, https://data.tuik.gov.tr/Bulten/Index?p=tuketici-fiyat-endeksi-haziran-2022-45795&dil=1 google scholar
  • Tümtürk, O. (2017). Türkiye’de döviz kurlarının yurtiçi fiyatlara geçiş etkisi ve enflasyon hedeflemesi. Yönetim ve Ekonomi Dergisi, 24(3), 837-855. https://doi.org/10.18657/yonveek.371996 google scholar
  • Türk, E., & Çetinkaya, A. T. (2015). Döviz kurundan fiyatlara geçiş etkisinin Granger nedensellik testi ile incelenmesi “Türkiye Örneği”. Kırıkkale Üniversitesi Sosyal Bilimler Dergisi, 5(1), 27-38. https:// dergipark.org.tr/tr/pub/kusbd/issue/19380/205605 google scholar
  • Turna, Y., Eşmen, S., & Turna, B. (2022). Türkiye’de döviz kurunun enflasyon etkisi ve fiyat yapışkanlıkları: NARDL yaklaşımı. İzmir İktisat Dergisi, 37(2), 522-535. https://doi.org/10.24988/ ije. google scholar
  • Yanar, R. & Berk, E. (2023). Döviz kurundaki değişimlerin yurtiçi üretici ve tüketici fiyatlarına geçiş etkisi: Türkiye üzerine bir uygulama. Gaziantep University Journal of Social Sciences, 22 (1), 223238. DOI: 10.21547/jss.1187052 google scholar
  • Yılmaz, M. & Uysal, D. (2019). Türkiye’de dolarizasyon ve enflasyon ilişkisi. İktisadi İdari ve Siyasal Araştırmalar Dergisi, 4 (10), 286-306. DOI: 10.25204/iktisad.543482 google scholar
  • Yilmazkuday, H. (2022). Drivers of Turkish inflation. The Quarterly Review of Economics and Finance, 84, 315-323. google scholar
  • Yüncüler, C. (2011). Pass-through of external factors into price indicators in Turkey. Central Bank Review, 11(2), 71-84. https://ideas.repec.org/a/tcb/cebare/v11y2011i2p71-84.html google scholar

Citations

Copy and paste a formatted citation or use one of the options to export in your chosen format


EXPORT



APA

Çakır, M., & Kaya, A.E. (2023). Does Exchange Rate Pass-Through Change Over Time in Türkiye?. Istanbul Journal of Economics, 73(1), 359-384. https://doi.org/10.26650/ISTJECON2022-1210198


AMA

Çakır M, Kaya A E. Does Exchange Rate Pass-Through Change Over Time in Türkiye?. Istanbul Journal of Economics. 2023;73(1):359-384. https://doi.org/10.26650/ISTJECON2022-1210198


ABNT

Çakır, M.; Kaya, A.E. Does Exchange Rate Pass-Through Change Over Time in Türkiye?. Istanbul Journal of Economics, [Publisher Location], v. 73, n. 1, p. 359-384, 2023.


Chicago: Author-Date Style

Çakır, Mustafa, and Ahmet Ekrem Kaya. 2023. “Does Exchange Rate Pass-Through Change Over Time in Türkiye?.” Istanbul Journal of Economics 73, no. 1: 359-384. https://doi.org/10.26650/ISTJECON2022-1210198


Chicago: Humanities Style

Çakır, Mustafa, and Ahmet Ekrem Kaya. Does Exchange Rate Pass-Through Change Over Time in Türkiye?.” Istanbul Journal of Economics 73, no. 1 (Jul. 2024): 359-384. https://doi.org/10.26650/ISTJECON2022-1210198


Harvard: Australian Style

Çakır, M & Kaya, AE 2023, 'Does Exchange Rate Pass-Through Change Over Time in Türkiye?', Istanbul Journal of Economics, vol. 73, no. 1, pp. 359-384, viewed 24 Jul. 2024, https://doi.org/10.26650/ISTJECON2022-1210198


Harvard: Author-Date Style

Çakır, M. and Kaya, A.E. (2023) ‘Does Exchange Rate Pass-Through Change Over Time in Türkiye?’, Istanbul Journal of Economics, 73(1), pp. 359-384. https://doi.org/10.26650/ISTJECON2022-1210198 (24 Jul. 2024).


MLA

Çakır, Mustafa, and Ahmet Ekrem Kaya. Does Exchange Rate Pass-Through Change Over Time in Türkiye?.” Istanbul Journal of Economics, vol. 73, no. 1, 2023, pp. 359-384. [Database Container], https://doi.org/10.26650/ISTJECON2022-1210198


Vancouver

Çakır M, Kaya AE. Does Exchange Rate Pass-Through Change Over Time in Türkiye?. Istanbul Journal of Economics [Internet]. 24 Jul. 2024 [cited 24 Jul. 2024];73(1):359-384. Available from: https://doi.org/10.26650/ISTJECON2022-1210198 doi: 10.26650/ISTJECON2022-1210198


ISNAD

Çakır, Mustafa - Kaya, AhmetEkrem. Does Exchange Rate Pass-Through Change Over Time in Türkiye?”. Istanbul Journal of Economics 73/1 (Jul. 2024): 359-384. https://doi.org/10.26650/ISTJECON2022-1210198



TIMELINE


Submitted25.11.2022
Accepted29.03.2023
Published Online30.03.2023

LICENCE


Attribution-NonCommercial (CC BY-NC)

This license lets others remix, tweak, and build upon your work non-commercially, and although their new works must also acknowledge you and be non-commercial, they don’t have to license their derivative works on the same terms.


SHARE




Istanbul University Press aims to contribute to the dissemination of ever growing scientific knowledge through publication of high quality scientific journals and books in accordance with the international publishing standards and ethics. Istanbul University Press follows an open access, non-commercial, scholarly publishing.