Does Exchange Rate Pass-Through Change Over Time in Turkiye?

This paper investigates whether the effects of exchange rate pass-through on general and disaggregated consumer prices change over time in Turkiye. Using the time-varying Granger causality (TVGC) test, the study examines the causality relationship between the US dollar and the consumer price index (CPI) over the 1986M01-2022M06 period and then the causality relationship between a US dollar and Euro currency basket and 12 main expenditure groups over the 2003M01 -2022M06 period. According to the findings, the effects of exchange rate pass-through (ERPT) on the CPI and major groups of consumer expenditures decreased based on the floating exchange rate and explicit inflation-targeting regime in Turkiye. The findings obtained from the TVGC test showed a bidirectional Granger causality between the US dollar and CPI and a unidirectional Granger causality from the currency basket to the indexes for the major groups of consumer expenditures. Moreover, the findings show the ERPT on the CPI to become more pronounced during national and international crises and to remain high and persistent due to the deterioration in CPI expectations.