Econometric analysis of the pass-through from exchange rates to domestic prices in Türkiye: 2016 - 2022 period

The inflation rate which remained relatively stable until 2016 in Türkiye, started to rise as a result of various problems in the economy (current account deficit, interest rate policy, excessive depreciation of Turkish Lira, exchange rate volatility, price rigidity and decrease in The Central Bank of the Republic Of Türkiye foreign exchange reserves, etc.) since 2016. The currency crisis in 2018 and the covid-19 pandemic that affected the whole world in 2020 caused serious problems in the Turkish economy. Along with these crises, the view that the volatility in the exchange rate in Turkey increased prices through the 'Pass-Through Effect' has also been seriously discussed. In this study, 77-month data set covering the period of 2016 – 2022, when the exchange rate in the Turkish economy has an upward trend, was used. As the variables subject to the analysis, the nominal exchange rate consisting of the dollar and euro basket, consumer price index (CPI), producer price index (PPI), real interest rate (R) and broadly money supply (M2). Considering the possibility that shocks (positive and negative) in the nominal exchange rate will affect prices asymmetrically (non-linearly), the NARDL model developed by (Shin vd., 2013) has been applied. According to the analysis results; it has been observed that positive shocks in the nominal exchange rate have significant effects on producer and consumer prices. In addition, it has been concluded that negative shocks in the nominal exchange rate cause increases, rather than a decrease, in producer and consumer prices in the long run.