EXCHANGE RATE PASS-THROUGH İN INFLATİON TARGETİNG REGİME: ECONOMETRİC ANALYSİS OF THE VALİDİTY OF TAYLOR'S HYPOTHESİS İN TURKEY

Abstract

In this study, the transition of fluctuations in exchange rates to producer and consumer prices in the years when the inflation targeting regime was implemented in Turkey was examined. The theoretical framework of exchange rate pass-through is limited by producer and consumer prices. Unlike other studies in the literature, bivariate VAR models were preferred to examine the relationship between variables. The data set is divided into two different parts, with reference to the year in which the inflation targeting regime began to be implemented in Turkey. It has been observed that the effect of the changes in the exchange rate on prices decreased in the years when the inflation targeting regime was implemented and inflation was partially controlled in Turkey. Also, it was seen that the changes in the exchange rate made a sharper transition to the consumer prices and the effect of fluctuations in EURO on prices is higher than that of USD.