Abstract:

Inflation has attracted attention as a long-standing problem in the Turkish economy. On the other hand, the Turkish lira steadily depreciates due to the chronic foreign trade deficit in the economy. The high interest-low exchange rate policy adopted after the 2001 economic crisis enabled the Turkish lira to appreciate for many years. However, both the abandonment of this policy and the decrease in foreign capital inflows along with other global economic developments caused the Turkish lira to depreciate. This process was followed by increases in inflation rates. There have been significant debates about the reasons for the price increases in the Turkish economy. When the import composition of the Turkish economy is examined, it can be said that there are approximately 90% of production goods. The aim of the study is to empirically investigate the effectiveness of the imported input costs channel in the effect of exchange rate on inflation. The econometric analysis period includes the period 2003-2022 and the VAR methodology is used. The econometric results show that the imported input costs channel is effective in exchange rate pass-through. The exchange rate fluctuations affect imported input costs, imported input costs affect producer prices, and producer prices affect consumer prices in the same direction and statistically significantly.

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