Abstract
This paper re-examines the exchange rate pass-through into trade prices in Turkey to observe possible asymmetries. This exercise is done using a Nonlinear Autoregressive Distributed Lag (NARDL) model. We provide empirical evidence that the impact of exchange rate into import and export prices are asymmetric, meaning that the export and import prices respond differently to a change in exchange rate depending on the direction. Moreover, we observe that the pass-through coefficients decline after Turkey adopts floating exchange rate regime. This result has important implications in terms of monetary policy.
Highlights
Large fluctuations of exchange rates have led researchers to focus their attention on the relationship of exchange rate with other macroeconomic variables, since exchange rate plays a vital role in maintaining macroeconomic stability
This paper aims to fill the gap in the literature by answering two questions: 1. Has exchange rate pass-through to export and import prices changed after Turkey adopted floating exchange rate regime?
We provide evidence for the asymmetric impact of exchange rate on export and import prices for the case of Turkey using nonlinear autoregressive distributed lag (NARDL) model
Summary
Large fluctuations of exchange rates have led researchers to focus their attention on the relationship of exchange rate with other macroeconomic variables, since exchange rate plays a vital role in maintaining macroeconomic stability. In this context, exchange rate pass-through to prices has been a productive area of Publication date: 14 August 2020. Asymmetric exchange rate pass-through to import and export prices for Turkey: A nonlinear autoregressive distributed lag (NARDL) approach. As Turkey adopted floating exchange rate regime in 2001, the evaluation of the sensitivity of trade prices to a change in the exchange rate of domestic currency is important in terms of monetary policy
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