Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey

Download

index.pdf

Date

2016-11-01

Author

Benlialper, Ahmet
Cömert, Hasan

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

181
views

76
downloads

Especially after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting (IT) regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing IT regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilised as implicit tools even under IT regimes in developing countries? To answer this question and investigate the determinants of inflation under an IT regime, as a case study, this article analyses the Turkish experience with IT between 2002 and 2008. There are two main findings. First, the evidence from a vector autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply-side factors, such as international commodity prices and the variation in exchange rate, rather than demand-side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the TL was tolerated during the period under investigation, whereas depreciation was responded aggressively by the bank. We call this policy stance under IT regimes 'implicit asymmetric exchange rate peg'. The Turkish experience indicates that as opposed to the rhetoric of central banks in developing countries, IT developing countries may have an asymmetric stance towards exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding over-appreciation of currencies in developing countries.

Subject Keywords

Exchange rates, Developing countries, Central banking, Inflation targeting

URI

https://hdl.handle.net/11511/47132

Journal

CAMBRIDGE JOURNAL OF ECONOMICS

DOI

https://doi.org/10.1093/cje/bev073

Collections

Department of Economics, Article

Suggestions

OpenMETU
Core

Implicit asymmetric exchange rate peg under inflation targeting regimes the case of Turkey Benlialper, Ahmet; Cömert, Hasan (null; 2013-06-29) Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determ...
Asymmetric exchange rate intervention under inflation targeting regimes : the case of Turkey, 2002-2008 Benlialper, Ahmet; Cömert, Hasan; Department of Economics (2013) Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determ...
Implicit Asymmetric Exchange Rate Intervention under Inflation Targeting Regimes Benlialper, Ahmet; Cömert, Hasan; Öcal, Nadir (2016-09-10) In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large appreciations in their currencies. Given that appreciation helps central banks to curb inflationary pressures, we ask whether central banks in developing countries have a different policy stance with respect to depreciation an...
Exchange rate pass-through into domestic price indicators: a sectoral analysis of Turkish economy Özen, Emine Özgü; Akbostancı Özkazanç, Elif; Department of Economics (2011) The question of exchange rate pass-through into domestic inflation is a widely analyzed issue due to its importance as regards to monetary policy, exchange rate policy and in general macroeconomic policy for open economies. Although most of the literature is focused on the exchange rate pass-through at the aggregate level, there are fewer studies that are done at the sectoral level for the Turkish economy. In this study by using a distribution chain of pricing model developed by McCarthy (2000), pass-throug...
Exchange rate pass-through to domestic prices in Turkish economy Alper, Koray; Gaygısız Lajunen, Esma; Department of Economics (2003) In this study, determinants and the evolution of the exchange rate passthrough to domestic inflation in the Turkish economy is analyzed. The analyses cover the 1987-2003 period. In the analyses, single equation أError Correction Modelsؤ are used to estimate the exchange rate pass-through. Estimation results suggest that alike other emerging countries, the degree of exchange rate passthrough to domestic prices is high and the pass-through is completed in a very short time span. Estimations results also indic...

Citation Formats

A. Benlialper and H. Cömert, “Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey,” CAMBRIDGE JOURNAL OF ECONOMICS, pp. 1553–1580, 2016, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/47132.