Dynamics of Inflation and Exchange Rate Pass-Through to Domestic Prices in Turkey

The exchange rate pass-through (ERPT), a popular topic since the 1980s, is an important source of information for forecasting inflation and can trigger or even fuel inflation through various channels. Therefore, it is an important signal for policymakers. In this context, although studies for Turkey show that ERPT declined after the 2001 crisis due to the change in the exchange rate regime and monetary policy strategy, the rapid increase in exchange rates and inflation since 2016 has put the ERPT back on the agenda. Therefore, this study aims to estimate ERPT in Turkey for the period 2003Q1- 2022Q3. The results suggest that ERPT has decreased with the transition to inflation targeting.