Abstract:

In Turkey, a significant improvement in inflation has been achieved with the "Inflation Target" regime implemented since 2006. However, from the second half of 2016, and in particular in 2018, the excess value of the currency against the Turkish Lira supported the upward trend in inflation, the inflation rate at the end of 2018 occurred at a level of 20.30%. The Central Bank of the Republic of Turkey has made a clear interest increase in the currency policy interest rates; in the framework of the ROM, steps such as the reduction of the top limit relating to the currency and the increase of the foreign currency obligation reward rates have been attempted to limit the upper movements in the currency. The aim of this study is to analyze the relationship between the real effective exchange rate and the consumer price index, based on the monthly data of the period 2003:01-2018:12 and using the Fourier ADF unit root, Fourier SHIN cointegration and Fourier Granger causality tests. The results of the study show that there is a short-term and long-term relationship between the real efficient rate and the consumer price index.