Abstract:

Along with globalization, as trade barriers among countries have been removed, changes in exchange rates have further increased the impact on the domestic economies. One of the effects of movements in exchange rates appears in inflation rate.  In the literature, there are many empirical studies that have investigated the pass-through effects of the exchange rate on domestic prices. The causality tests used within the scope of the studies assume that the effects of the positive and negative shocks occurring in the variables are the same. The difference distinguishing this study from the other in literature is that the current study investigates the possible causality among the shocks by separating the positive and negative shocks of the given variable. In this study, Hatemi-J (2012) asymmetric causality test was used to investigate the exchange rate pass-through effect on the general price level in Turkey. At the end of the test; at the 5% significance level, a one-way asymmetric causality relationship was found between the positive USD component and the positive CPI component, the positive EURO component and the positive CPI component and also the positive EURO component and the positive USD component. Moreover, Toda-Yamamoto causality test has been used in order to compare with the results from Hatemi-J asymmetric causality test. According to findings of Toda-Yamamoto causality test, there is no exchange rate pass-through to prices effect in Turkey.

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