Modelling the Relationship between Dollar Exchange Rate and Consumer Price Index via Archimedean Copula

In this paper, the dependence structure between rate of change in twelve months for consumer price indeks (CPI) and dollar exchange rate is modelled. The main assumption of this study is the dependence structure between of these two variables can be modelled by one of Gumbel, Clayton and Frank copula functions that belong to Archimedean copula family. The method that is suggested by Genest anad Rivest (1993) is used to estimate the bivariate Archimedean copula function that describe dependence structure. The copula function that provides most approriate fit to data is selected by minimizing the distance between considered copula function and the emprical copula function. The results show that bivariate Archimedean copula function that model the dependence structure between CPI and dollar Exchange rate is estimated to be Gumbel (θˆ = 100 ). Consequently, the variables tend to be increasing together can be said