Asymmetric Behavior of the Exchange Rate Pass-Through to Manufacturing Prices in Turkey

This study investigates the presence of asymmetry in the exchange rate pass-through (ERPT) to manufacturing industry prices in Turkey. Employing threshold regression models, the author examines whether the reaction of prices to the exchange rate vary depending on the demand conditions, size of exchange rate changes, exchange rate volatility, and inflation level. The results indicate that pass-through is affected positively by the aggregate demand conditions. In particular, when the economy is growing, exchange rate changes are transmitted to prices to a larger extent than otherwise. The author finds no evidence of asymmetry in ERPT regarding the size of exchange rate changes, volatility of exchange rate, or inflation level.