Relationship between trade deficit, exchange rate and inflation: Turkey sample

A good determination of the factors affecting inflation is important in the fight against inflation. One of the factors affecting inflation is foreign trade transactions. In such a country where foreign trade deficits and foreign trade deficits are continuously dependent on the importation of intermediate goods, these foreign trade gaps affect the exchange rate and indirectly affect inflation rates. For this reason, although inflation seems to be a problem arising from domestic economic activities, it is a matter of fact that it is also a source of foreign income. Therefore, external economic relations should not be ignored while determining the causes of inflation. In this study, the relationship between foreign trade deficit, exchange rate and inflation was analyzed by vector autoregression method by using quarterly data for 2003 - 2018 periods. The results obtained according to the foreign trade deficit and exchange rate in Turkey relationship has not been established, but also affect the inflation rate for the foreign trade deficit and inflation rates.