Exchange rate pass-through at high and low frequencies in Turkey: a continuous wavelet transform model approach

Abstract

Abstract This paper investigates the effect of the exchange rate on prices through wavelet analysis for the period 2010:01-2019:12 in Turkey. The Wavelet Transform outcomes reveal that at a higher frequency, an upsurge in the Consumer Price Index (CPI) is associated with an increase in the exchange rate, for the period 2011:03-2013:12, and an increase in the exchange rate is accompanied by a higher CPI during the 2015:02-2018:10 period. Moreover, at a lower frequency, an increase in CPI is accompanied by a rise in the exchange rate during the 2014:01-2017:12 period. These results highlight that the pass-through effect is empirically confirmed in Turkey. It is also shown that the power of the pass-through effect might vary from one sub-sample period to another with different frequencies.

Keywords

• Pass-through Effect; Exchange Rate; Continuous Wavelet Transform; Turkey