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The interest rate–inflation relationship under an inflation targeting regime: The case of Turkey

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  • Kose, Nezir
  • Emirmahmutoglu, Furkan
  • Aksoy, Sezgin

Abstract

This paper examines the relationship between nominal interest rates and the expected inflation rate for the Turkish economy between 2002 and 2009, a period when the inflation-targeting regime was implemented as monetary policy. We use the test of cointegrating rank with a trend-break (a method introduced by Inoue, 1999) and we also apply exogeneity tests. Empirical findings indicate that monetary policy rates depend on inflationary expectations; long-term interest rates are affected by monetary policy; and the weak form of the Fisher effect is valid. This evidence implies that monetary policy has actually influenced the real long-term interest rates; the inflation targeting regime pursued by the Central Bank of Turkey is reliable; and hence realized inflation has remained close to its targeted level.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 4 ()
Pages: 476-485

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Handle: RePEc:eee:asieco:v:23:y:2012:i:4:p:476-485

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Inflation targeting; Fisher effect; Term structure of interest rates; Cointegration with breaks; Exogeneity test;

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References

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Cited by:
  1. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.

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