Abstract:

In this study, the effect of exchange rate on inflation was analyzed econometrically with monthly data for the period 2010M11-2023M5 in Turkiye. Fourier functions, which are capable of capturing slow structural changes, were used in the analyses. First, the stationarity tests of the variables were tested with the Fourier KPSS (FKPSS) unit root test, and it was observed that they became stationary at the first difference that they contain a unit root at the level. Fourier Shin (FSHIN) cointegration test was used to test the long-term relationships of difference stationary variables. According to the findings, the variables move together in the long run. The coefficients of the long-term relationship between the variables were estimated with FMOLS and DOLS coefficient estimators. In the long run, a 1% increase in the exchange rate causes a 0.86% increase in inflation. In the last stage of the analysis, the causality relationship between the variables was tested with the Fourier Toda-Yamamoto (FTY) test. The findings indicate a double-sided causal relationship between exchange rate and inflation in Turkiye.

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