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EXCHANGE RATE PASS-THROUGH INTO INDUSTRY-SPECIFIC PRICES: AN ANALYSIS WITH INDUSTRY-SPECIFIC EXCHANGE RATES

Published online by Cambridge University Press:  14 May 2019

Hülya Saygılı  and
Mesut Saygılı
Hülya Saygılı*
Affiliation:
Central Bank of Turkey
Mesut Saygılı
Affiliation:
United Nations Conference on Trade and Development
*
Address correspondence to: Hülya Saygılı, Central Bank of Turkey, Isti klal caddesi no: 10, Ulus, 06050, Ankara, Turkey. e-mail: hulya.saygili@tcmb.gov.tr
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Abstract

This paper examines the heterogeneity of exchange rate pass-through into industry-specific import, producer, and consumer prices. Results show that depending on the imported input contents, price responsiveness to the aggregate and relative exchange rate changes displays significant differences. We found that direct exchange rate impacts are more significant than indirect effects. The importance of the indirect effects is largely influenced from energy, basic metal, and chemical industries that provide intermediate inputs to others. The time horizon plays a role in the transition process: exchange rate pass-through tends to get stronger and spread to different price indices over time. The short-run impacts of aggregate exchange rate changes are not significant, while relative exchange rate changes partially transmit to producer and consumer prices in low-import content industries. In the long run direct impacts of both aggregate and relative exchange rates are significant on import prices in all industries and producer prices in high-import content industries. Another interesting finding is that the relative and aggregate exchange rate changes have opposing impacts on domestic prices: asymmetric information about industry-specific exchange rates can create pricing opportunities.

Keywords

Pass-throughIndustry-specific Exchange RatesProduction StructurePanel-VAR
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 2 , March 2021 , pp. 304 - 336
Copyright
© Cambridge University Press 2019

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