Özet:

In this study the relationship between price levels in Turkey and enxchange rates of US Dollar and Euro has been investigated. Cointegration analysis has been used in order to see the presence of long-run relationship between the variables. To see the direction of the relationship and the short-run dynamics between the selected variables, a Vector Error Correction Model (VECM) analysis has been utilized. The results show that there is a long-run equilibrium relationship between price levels in Turkey and the two exchange rates, (USD/TRY) and (EUR/TRY). The VECM estimates reveal that long run causality runs from the Exchange rates to inflation. As a result, the higher the exchange rates, the higher the inflation in Turkey.

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