Research Article
Asymmetric effects of exchange rate on inflation in Turkey: What aggregated and disaggregated data reveal
Abstract
The relationship between inflation and exchange rate in the Turkish economy is remarkable. While indirect effects of exchange rate on inflation occur through the cost channel, direct effects emerge through the consumption channel. In addition, changes in the exchange rate affect pricing decisions through the indexing channel. This study examines the effects of the exchange rate on general inflation and certain subcomponents for 2003Q1-2020Q1. For this purpose, it uses linear and nonlinear ARDL models. In the linear model results, while the short-term effects of the exchange rate occur at different rates, the long-term effects are more robust. According to the estimation results of the nonlinear model, exchange rate movements (increase-decrease) in the short run cause changes at similar rates in general prices. The findings indicate that the exchange rate is the primary determinant of inflation. In the long run, this effect is more substantial. Moreover, the asymmetries in the subcomponents are striking. While the exchange rate increases are reflected in the prices, the effect of the exchange rate decreases is insignificant. The fact that similar effects are observed in the long term can be explained by the upward trend in the exchange rate. The strong relationship between exchange rate and inflation also weakens the effectiveness of the monetary policy. In order to conduct an effective monetary policy, it is necessary to solve the structural problems of the economy and improve the production structure. In addition, economic policy should consider the stability of the exchange rate.
Thanks
This study is developed on Anıl Tuğral's Master Thesis, “Inflation Dynamics in Turkish Economy: A Disaggregated Phillips Curve Approach”, supervised by Bilgin Bari.
References
- Abdih, Y., Balakrishnan, R., & Shang, B. (2016). What is keeping U.S. core inflation low: Insights from a bottom-up approach. IMF Working Papers, 16(124).
- Atuk, O., Aysoy, C., Ozmen, M. U., & Sarıkaya, C. (2014). Sensitivity of inflation to business cycles in Turkey: Determining CPI sub-items sensitive to output gap. CBRT Working Paper, 14(37).
- Atuk, O., Ozmen, M. U., & Sarıkaya, C. (2018). A disaggregated analysis of the impact of output gap on inflation and implications for monetary policy. Prague Economic Papers, 27(6), 668-683.
- Balkan, B., Kal, S. H., & Tumen, S. (2015). Investigating the effect of fuel prices on fresh fruit and vegetable prices through the transportation cost channel. CBRT Research Notes in Economics, 2015(08).
- Bari, B. (2021). Credit cycles and business cycles in Turkish economy. In S. Karabulut (Ed.). İktisadi, Mali ve Finansal Uygulamaların Ampirik Sonuçları (pp. 145-159). Gazi Kitabevi.
- Bari, B., & Adalı, Z. (2020). How oil prices drive inflation in Turkish economy: Two different channels. Fiscaoeconomia, 4(3), 705-721.
- CBRT (2019). Inflation Report 2019-III. https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Reports/Inflation+Report/2019/Inflation+Report+2019+-+III
- Ergin, A. (2015). Döviz kuru ve enflasyon arasındaki geçiş etkisi: Türkiye örneği. Niğde Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 8(3), 13-29.
- Ertug, D., Ozlu, P., & Yunculer, C. (2018). How does the use of imported inputs affect exchange rate and import price pass-through?. CBRT Blog. https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/exchange+rate+pass-through
- Ertug, D., & Ozmen, M. U. (2020). Indirect effects of electricity and natural gas price increases on consumer prices. CBRT Blog. https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/indirect+effects+of+electricity+and+natural+gas+price+increases+on+consumer+prices
- Friedman, M. (1968). The role of monetary policy. The American Economic Review, 58(1), 1-17.
- Kara, H., & Ogunç, F. (2008). Inflation targeting and exchange rate pass-through: The Turkish experience. Emerging Markets Finance and Trade, 44(6), 52-66.
- Lanau, S., Robles, A., & Toscani, F. (2018). Explaining inflation in Colombia: A disaggregated phillips curve approach. IMF Working Papers, 18(106).
- Lopcu, K., & Sengul, S. (2018). Is the food price volatility responsible for inflation volatility? An investigation for Turkey. Topics in Middle East and African Economies, 20(2), 105-124.
- Ogunc, F., Ozmen, M. U., & Sarıkaya, C. (2018). Inflation dynamics in Turkey from a bayesian perspective. CBRT Working Paper, 18(10).
- Ozmen, M. U., & Topaloglu, M. (2017). Disaggregated evidence for exchange rate and import price pass-through in the light of identification issues, aggregation bias and heterogeneity. CBRT Working Paper, 17(08).
- Ozmen, M. U., & Sarıkaya, C. (2014). Enflasyonun çıktı açığı ve kredilere duyarlılığı. TCMB Ekonomi Notları, 2014(17).
- Ozmen, M. U., & Sevinc, O. (2016). Price rigidity in Turkey: Evidence from micro data. Emerging Markets Finance and Trade, 52(4), 1029-1045.
- Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom (Ed.). Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (pp. 371-413). Cambridge University Press.
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
- Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica, 34(135), 254-281.
- Phillips, A. W. (1958). The relation between unemployment and the rate of changes of money wage rates in the United Kingdom, 1861-1957. Economica, 25(100), 283-299.
- Shin, Y., Yu., B., & Greenwood-Nimmo, M. (2014). modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. Sickles & W. Horrace (Eds.). Festschrift in Honor of Peter Schmidt (pp. 281-314). Springer.
- Taylor, J. B. (2000). Low inflation, pass-through, and the pricing power of firms. European Economic Review, 44(7), 1389-1408.
- Yunculer, C. (2011). Pass-through of external factors into price indicators in Turkey. Central Bank Review, 11(2), 71-84.
Türkiye’de döviz kurlarının enflasyon üzerindeki asimetrik etkileri: Birleştirilmiş ve ayrıştırılmış verilerin açıklanması
Abstract
Türkiye ekonomisinde enflasyon-döviz kuru ilişkisi literatürde sıkça araştırılan konuların başında gelmektedir. Döviz kurunun enflasyon üzerinde maliyet kanalı üzerinden dolaylı etkileri, tüketim kanalı üzerinden ise doğrudan etkileri ortaya çıkmaktadır. Ayrıca, döviz kurundaki değişimler endeksleme kanalı üzerinden fiyatlama kararlarını da etkiler. Bu çalışma döviz kurunun hem genel enflasyon hem de belirli alt kalemler üzerindeki etkilerini 2003Q1-2020Q1 dönemi için inceliyor. Bu amaçla doğrusal ve doğrusal olmayan ARDL modelleri kullanıyor. Doğrusal model sonuçlarında döviz kurunun kısa dönem etkileri farklı oranlarda ortaya çıkarken, uzun dönem etkiler ise daha güçlüdür. Doğrusal olmayan modelin tahmin sonuçlarına göre, kısa dönemde kur hareketleri (artış-azalış) genel fiyatlar üzerinde birbirine yakın oranlarda değişim yaratır. Bu döviz kurunun enflasyonun temel belirleyicisi olduğuna işaret ediyor. Uzun dönemde bu etki çok daha güçlü bir biçimde ortaya çıkıyor. Dahası, alt bileşenlerdeki asimetriler dikkat çekicidir. Kur artışları fiyatlara yansırken, kur düşüşlerinin etkisi anlamsız çıkmaktadır. Uzun dönemde de benzer etkilerin görülmesi kurun artış trendini sürdürmesi ile açıklanabilir. Döviz kuru ve enflasyon arasındaki güçlü ilişki para politikasının etkinliğini de zayıflatmaktadır. Etkin bir para politikası yürütülebilmesi içine ekonominin yapısal sorunlarının çözülmesi ve üretim yapısının iyileştirilmesi gereklidir. Ayrıca döviz kurunda istikrarı sağlayan bir ekonomi politikasının gerekliliği de açıktır.
References
- Abdih, Y., Balakrishnan, R., & Shang, B. (2016). What is keeping U.S. core inflation low: Insights from a bottom-up approach. IMF Working Papers, 16(124).
- Atuk, O., Aysoy, C., Ozmen, M. U., & Sarıkaya, C. (2014). Sensitivity of inflation to business cycles in Turkey: Determining CPI sub-items sensitive to output gap. CBRT Working Paper, 14(37).
- Atuk, O., Ozmen, M. U., & Sarıkaya, C. (2018). A disaggregated analysis of the impact of output gap on inflation and implications for monetary policy. Prague Economic Papers, 27(6), 668-683.
- Balkan, B., Kal, S. H., & Tumen, S. (2015). Investigating the effect of fuel prices on fresh fruit and vegetable prices through the transportation cost channel. CBRT Research Notes in Economics, 2015(08).
- Bari, B. (2021). Credit cycles and business cycles in Turkish economy. In S. Karabulut (Ed.). İktisadi, Mali ve Finansal Uygulamaların Ampirik Sonuçları (pp. 145-159). Gazi Kitabevi.
- Bari, B., & Adalı, Z. (2020). How oil prices drive inflation in Turkish economy: Two different channels. Fiscaoeconomia, 4(3), 705-721.
- CBRT (2019). Inflation Report 2019-III. https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Reports/Inflation+Report/2019/Inflation+Report+2019+-+III
- Ergin, A. (2015). Döviz kuru ve enflasyon arasındaki geçiş etkisi: Türkiye örneği. Niğde Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 8(3), 13-29.
- Ertug, D., Ozlu, P., & Yunculer, C. (2018). How does the use of imported inputs affect exchange rate and import price pass-through?. CBRT Blog. https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/exchange+rate+pass-through
- Ertug, D., & Ozmen, M. U. (2020). Indirect effects of electricity and natural gas price increases on consumer prices. CBRT Blog. https://tcmbblog.org/wps/wcm/connect/blog/en/main+menu/analyses/indirect+effects+of+electricity+and+natural+gas+price+increases+on+consumer+prices
- Friedman, M. (1968). The role of monetary policy. The American Economic Review, 58(1), 1-17.
- Kara, H., & Ogunç, F. (2008). Inflation targeting and exchange rate pass-through: The Turkish experience. Emerging Markets Finance and Trade, 44(6), 52-66.
- Lanau, S., Robles, A., & Toscani, F. (2018). Explaining inflation in Colombia: A disaggregated phillips curve approach. IMF Working Papers, 18(106).
- Lopcu, K., & Sengul, S. (2018). Is the food price volatility responsible for inflation volatility? An investigation for Turkey. Topics in Middle East and African Economies, 20(2), 105-124.
- Ogunc, F., Ozmen, M. U., & Sarıkaya, C. (2018). Inflation dynamics in Turkey from a bayesian perspective. CBRT Working Paper, 18(10).
- Ozmen, M. U., & Topaloglu, M. (2017). Disaggregated evidence for exchange rate and import price pass-through in the light of identification issues, aggregation bias and heterogeneity. CBRT Working Paper, 17(08).
- Ozmen, M. U., & Sarıkaya, C. (2014). Enflasyonun çıktı açığı ve kredilere duyarlılığı. TCMB Ekonomi Notları, 2014(17).
- Ozmen, M. U., & Sevinc, O. (2016). Price rigidity in Turkey: Evidence from micro data. Emerging Markets Finance and Trade, 52(4), 1029-1045.
- Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom (Ed.). Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (pp. 371-413). Cambridge University Press.
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
- Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica, 34(135), 254-281.
- Phillips, A. W. (1958). The relation between unemployment and the rate of changes of money wage rates in the United Kingdom, 1861-1957. Economica, 25(100), 283-299.
- Shin, Y., Yu., B., & Greenwood-Nimmo, M. (2014). modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. Sickles & W. Horrace (Eds.). Festschrift in Honor of Peter Schmidt (pp. 281-314). Springer.
- Taylor, J. B. (2000). Low inflation, pass-through, and the pricing power of firms. European Economic Review, 44(7), 1389-1408.
- Yunculer, C. (2011). Pass-through of external factors into price indicators in Turkey. Central Bank Review, 11(2), 71-84.
There are 25 citations in total.
Details
| Primary Language | English |
|---|---|
| Journal Section | Articles |
| Authors | |
| Publication Date | September 30, 2021 |
| Submission Date | July 26, 2021 |
| Published in Issue | Year 2021 Volume: 35 Issue: 3 |
Cited By
Global and domestic drivers of inflation: evidence from select South Asian countries
Journal of Economic and Administrative Sciences
https://doi.org/10.1108/JEAS-05-2023-0110
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