The Time-Varying Impact of External Shocks on the Consumer Price Components: Evidence from an Emerging Market

This article aims to assess the extent of oil price and exchange rate pass-through into disaggregated consumer prices in Turkey in a time-varying framework. For this purpose, pass-through coefficients are computed based on the TVP-VAR model with stochastic volatility by Primiceri (Rev Econ Stud 72:821-852, 2005). The results suggest that (a) oil prices have a significant impact on wholesale and consumer prices; (b) the responses follow a time-varying pattern and differ markedly across the subcomponents of consumer prices, i.e., consumer energy prices, transportation, clothing and footwear, food, beverages and tobacco, and housing are more sensitive to the changes in oil prices; (c) the impact of the exchange rate is found to be more significant and higher compared to that of oil prices; and (d) oil pass-through coefficients have declined remarkably after the 2008 Global Financial Crisis, whereas remarkable increases have been observed in the exchange rate pass-through coefficients since that time.