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Uncovered Interest Rate Parity: The Turkish Evidence

Author

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  • Öge Güney Pelin

    (Economics, Hacettepe Universitesi, Ankara, Turkey)

Abstract

This paper presents an empirical investigation of the uncovered interest parity (UIP) between the Turkish Lira (TRY)/US Dollar (USD) and Turkish Lira/Euro (EUR). Our results do not provide evidence supporting the UIP hypothesis for either case. Moreover, the estimates imply causality from the TRY/USD exchange rate return to the interest rate differential. Accordingly, the Turkish Central Bank (CBRT) may respond by increasing the domestic interest rate to a depreciation of the TRY against the USD . By taking this type of action, it can be concluded that the CBRT tried to control capital movements. This result supports (McCallum, Bennett T. 1994. “A Reconsideration of the Uncovered Interest Parity Relationship.” Journal of Monetary Economics 33 (1): 105–132.)’s argument, which advances the behavior of the monetary policy as a reason for the failure of the UIP condition.

Suggested Citation

  • Öge Güney Pelin, 2018. "Uncovered Interest Rate Parity: The Turkish Evidence," Review of Middle East Economics and Finance, De Gruyter, vol. 14(2), pages 1-11, August.
    • Handle: RePEc:bpj:rmeecf:v:14:y:2018:i:2:p:11:n:2
    DOI: 10.1515/rmeef-2017-0025
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    References listed on IDEAS

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    More about this item

    Keywords

    uncovered interest parity; exchange rates; ARDL;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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