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

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

Mustafa Çakır, Ahmet 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 

Keywords: Exchange rate pass-through, Consumer prices, Time-varying Granger causality
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 Çakır, Ahmet 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.

Keywords: Kur geçişkenliği, Tüketici fiyatları, Zamanla değişen Granger nedensellik testi
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. 


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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 (Mar. 2025): 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 23 Mar. 2025, 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 (23 Mar. 2025).


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]. 23 Mar. 2025 [cited 23 Mar. 2025];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 (Mar. 2025): 359-384. https://doi.org/10.26650/ISTJECON2022-1210198



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Submitted25.11.2022
Accepted29.03.2023
Published Online30.03.2023

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