Exchange rate pass-through in Turkey

Today, within the framework of the "exchange rate pass-through" phenomenon, the domestic price level has become extremely sensitive to external shocks caused by exchange rate changes. This situation also affected the effectiveness of the anti-inflation policies implemented by the central banks due to the changes in exchange rates. Since 2002 implicit, since 2006 is clearly Inflation Targeting Stability Program is being implemented in Turkey. Accordingly, the process of exchange rate pass-through analysis of the monetary policy implemented in Turkey has gained great importance in terms of effectiveness. In this study, the effects of exchange rate changes on the general level of prices were analyzed with the help of ımpulse-response function and variance decomposition analysis developed based on var model by using monthly data between 2006 and 2017. Empirical findings established in Turkey in the period under review shows that the current pass-through process. Exchange rate changes affect both the Producer Price Index (PPI) and the Consumer Price Index (CPI). Turkey's production structure is extremely well set up to be connected to the pass-through intermediate and capital goods imports as a basis, in the form of cost inflation, is caused to occur over more than PPI. This figure shows the exchange rate pass-through of the structure of production in Turkey is not effective mechanism outer intermediate and capital goods can not be made permanent solution to the problem of inflation without reducing the dependence on imports. In addition, the implementation of the inflation-targeting monetary regime of the free float of the exchange rate within the framework despite essentially being a principle established in Turkey to ensure price stability, the central bank is setting the agenda for a particular control will establish policy implementation.