Exchange rate pass-through in Turkey under inflation targeting regime

Abstract

Exchange rate pass through, the impact of exchange rate change on the domestic price level through changes in the import prices, has long been of interest in international economics literature. Along with the application of inflation targeting regime widely, the focus of this interest has also evolved to examine the changes in degree and speed of exchange rate pass through under inflation targeting regime. Turkey, adopted Inflation Targeting (IT) as a monetary regime between 2001 and 2006 implicitly and then explicitly, exhibits a genuine experience to be analyzed in this respect. From this point of view, the goal of the paper' is to provide a time-series analysis of exchange rate pass through for Turkish Economy based on single equation Error Correction Model estimation using the monthly data under pre-IT period 1995-2000 and post-IT period 2006-2014. Thus, we try to clarify the connection between the effectiveness of inflation targeting regime as monetary policy and the development of exchange rate pass-through.