The Relationship Between Exchange Rate Volatility and Inflation Uncertainty in the Türkiye Economy
Özet
The relationship between the exchange rate and inflation exhibits
a dynamic structure operating through cost and expectations channels. In terms
of cost pass-through, the depreciation of the domestic currency increases the
prices of imported goods, creating inflationary pressure through production
costs. Through the expectations channel, expectations of continued exchange
rate increases shape the price and wage-setting behavior of economic units
upwards. This process creates a lasting effect by increasing both actual
inflation and inflation expectations. This study aims to examine the relationship between the exchange
rate and inflation in the Turkish economy, particularly within the framework of
volatility transmission. The analysis utilizes monthly data on the CPI and the
US dollar exchange rate from January 2003 to March 2026. The Multivariate
Stochastic Volatility (DC-MSV) model is applied as the method. The findings show
a significant volatility transmission, from exchange rate volatility to
inflation uncertainty. In other words, exchange rate volatility increases
inflation uncertainty and negatively affects price stability. These results
demonstrate that ensuring exchange rate stability is critical not only for
controlling the level of inflation but also for controlling inflation
uncertainty.
Atıf için künye
Coşkun, K. F., Tığtepe, E., & Özdemir, D. (2026). The Relationship Between Exchange Rate Volatility and Inflation Uncertainty in the Türkiye Economy. The Second Spring Meeting of Turkish Economic Association (SMTEA2026), İstanbul (ss. 1–10).
BibTeX
@inproceedings{coskun2026-105214,
author = {Coşkun, Kerem Fırat and Tığtepe, Elifnur and Özdemir, Dilek},
title = {The Relationship Between Exchange Rate Volatility and Inflation Uncertainty in the Türkiye Economy},
booktitle = {The Second Spring Meeting of Turkish Economic Association (SMTEA2026)},
address = {İstanbul},
year = {2026},
pages = {1--10},
url = {https://akademik.atauni.edu.tr/yayinlar/105214-the-relationship-between-exchange-rate-volatility-and-inflation-uncertainty-in}
}