Akademik Veri Yönetim Sistemi
The Second Spring Meeting of Turkish Economic Association (SMTEA2026), İstanbul, Türkiye, 6 - 09 Mayıs 2026, ss.1-10, (Özet Bildiri)
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.