Exchange Rate Pass-Through and Exposure in the Turkish Economy

Abstract

This paper examines the impact of exchange rate variations on the export prices and the profitability of the firms, at sectoral and at firm level respectively, in the Turkish manufacturing industry for the period 1995–2007. The data set consists of export unit values,bilateral exchange rates, total revenues, cost of goods sold, value of domestic and foreign sales, and Turkey’s export trade partner’s GDP’s and CPI’s. The results show that there is a tendency for local currency price stabilization. The average estimate of exchange rate pass-through to export prices is around 0.6. There is a mixed evidence on the relationship between exchange rate variations and profitability. It is found an apparent variation in the magnitude and direction of exposure across firms. However, these results are not robust to the specification used.