A review on currency shocks and inflation volatility: Evidence from a DCC-GARCH model

In the present research, the relationship among the exchange rate and inflation in Turkey was investigated by considering the monthly dataset among 1990:1-2022:4 years. The consumer price index, producer price index, industrial production index, nominal exchange rate, and money supply are used as variables to represent inflation. Impulse-Response analyzes were used to find the short-term effects of the variables, decomposition of variance analysis for the causes of the changes in the variances of the variables, and the medium and long-term relationships of the variables in pairs were determined by DCCGARCH models. While the models were being created, they were seasonally adjusted, and the inputs of the DCC-GARCH models were determined consequently the VAR analysis. In the results of the impulse-response analysis, it is seen that the reaction of inflation to the exchange rate shock is positive and lasts for five periods, after which the response fades. In the results of the impact-response analysis of the exchange rate, it has been determined that the reaction of the exchange rate to inflation has been stable for twelve periods. In the results of the variance decomposition analysis for inflation, at the end of twelve periods, 4.83% of the change in inflation was caused by the exchange rate; In the exchange rate variance decomposition analysis, it was concluded that 8% of the difference in the exchange rate was caused by inflation. While GARCH models show a negative interaction between inflation and exchange rate, DCC-GARCH results show that the permanence degree of short-term shocks between inflation and exchange rate is 0.43%. In addition, while a semi-strong GARCH process was found between inflation and money supply, a strong GARCH process was found between inflation and producer price index.

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Eser Adı
(dc.title)
A review on currency shocks and inflation volatility: Evidence from a DCC-GARCH model
Yazar [Asıl]
(dc.creator.author)
Akça, Melike
Yazar Departmanı
(dc.creator.department)
Yeditepe University Graduate School of Social Sciences
Yazar Departmanı
(dc.creator.department)
Yeditepe University Graduate School of Social Sciences Master’s Program in Financial Economics
Yayın Tarihi
(dc.date.issued)
2024
Yayın Turu [Akademik]
(dc.type)
preprint
Yayın Türü [Ortam]
(dc.format)
application/pdf
Konu Başlıkları [Genel]
(dc.subject)
Dcc-garch
Konu Başlıkları [Genel]
(dc.subject)
Exchange rate
Konu Başlıkları [Genel]
(dc.subject)
Inflation
Konu Başlıkları [Genel]
(dc.subject)
Impulse-response
Konu Başlıkları [Genel]
(dc.subject)
Variance decomposition
Konu Başlıkları [Genel]
(dc.subject)
Döviz kuru
Konu Başlıkları [Genel]
(dc.subject)
Enflasyon
Konu Başlıkları [Genel]
(dc.subject)
Etki-tepki
Konu Başlıkları [Genel]
(dc.subject)
Varyans ayrıştırması
Yayıncı
(dc.publisher)
Yeditepe University Academic and Open Access Information System
Dil
(dc.language.iso)
eng
Özet Bilgisi
(dc.description.abstract)
In the present research, the relationship among the exchange rate and inflation in Turkey was investigated by considering the monthly dataset among 1990:1-2022:4 years. The consumer price index, producer price index, industrial production index, nominal exchange rate, and money supply are used as variables to represent inflation. Impulse-Response analyzes were used to find the short-term effects of the variables, decomposition of variance analysis for the causes of the changes in the variances of the variables, and the medium and long-term relationships of the variables in pairs were determined by DCCGARCH models. While the models were being created, they were seasonally adjusted, and the inputs of the DCC-GARCH models were determined consequently the VAR analysis. In the results of the impulse-response analysis, it is seen that the reaction of inflation to the exchange rate shock is positive and lasts for five periods, after which the response fades. In the results of the impact-response analysis of the exchange rate, it has been determined that the reaction of the exchange rate to inflation has been stable for twelve periods. In the results of the variance decomposition analysis for inflation, at the end of twelve periods, 4.83% of the change in inflation was caused by the exchange rate; In the exchange rate variance decomposition analysis, it was concluded that 8% of the difference in the exchange rate was caused by inflation. While GARCH models show a negative interaction between inflation and exchange rate, DCC-GARCH results show that the permanence degree of short-term shocks between inflation and exchange rate is 0.43%. In addition, while a semi-strong GARCH process was found between inflation and money supply, a strong GARCH process was found between inflation and producer price index.
Kayıt Giriş Tarihi
(dc.date.accessioned)
2024-02-23
Açık Erişim Tarihi
(dc.date.available)
2024-02-23
Haklar
(dc.rights)
Yeditepe University Academic and Open Access Information System
Erişim Hakkı
(dc.rights.access)
Open Access
Telif Hakkı
(dc.rights.holder)
Unless otherwise stated, copyrights belong to Yeditepe University. Usage permissions are specified in the Open Access System, and "InC-NC/1.0" and "by-nc-nd/4.0" are as stated.
Telif Hakkı Url
(dc.rights.uri)
http://creativecommons.org/licenses/by-nc-nd/4.0
Telif Hakkı Url
(dc.rights.uri)
https://rightsstatements.org/page/InC-NC/1.0/?language=en
Açıklama [Genel]
(dc.description)
Final published version
Açıklama [Not]
(dc.description.note)
Note: This preprint reports new research that has not been certified by peer review and should not be used as established information without consulting multiple experts in the field.
Tanım Koleksiyon Bilgisi
(dc.description.collectioninformation)
This item is part of the preprint collection made available through Yeditepe University library. For your questions, our contact address is openaccess@yeditepe.edu.tr
Yazar [KatkıdaBulunan]
(dc.contributor.author)
Ulusoy, Veysel
Yazar [KatkıdaBulunan] Kurum
(dc.contributor.institution)
Yeditepe University Graduate School of Social Sciences
Yazar [KatkıdaBulunan] Kurum
(dc.contributor.institution)
Yeditepe University Graduate School of Social Sciences Master’s Program in Financial Economics
Yazar Katkı Sağlayan OrcID
(dc.contributor.authorOrcid)
0000-0001-7227-894X
Tek Biçim Adres
(dc.identifier.uri)
https://hdl.handle.net/20.500.11831/8279
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