Are there asymmetries in the nexus between exchange rate and domestic prices? Evidence from Turkey

This study examines the presence or otherwise of asymmetries in the relationship between exchange rate and domestic prices (both consumer and producer prices) in Turkey. Monthly series on the study variables were collected for the period from January 2003 to April 2018. The econometric analysis was carried out by employing the Threshold Autoregressive (TAR) and Momentum Threshold Autoregressive (MTAR) models following the approach of Enders and Siklos (2001). The findings of the study suggest the presence of asymmetry in the relationship between exchange rate and both consumer and producer prices in Turkey. It was further discovered that adjustments of both consumer and producer prices following exchange rate depreciation appear to be more sluggish relative to an appreciation of exchange rate. The study emphasized the inappropriateness of adopting a one-size-fits-all approach to managing price level dynamics following exchange rate fluctuations.