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Exchange Rate Risk and Interest Rate: A Case Study for Turkey

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  • Hakan Berument
  • Asli Günay

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Abstract

This paper examines the effect of exchange rate risk on interest rates within the uncovered interest rate parity condition for Turkey. When the interest rate is measured with the Treasury auction interest rate and the exchange rate risk is measured with the conditional variance of the exchange rate, then we found that there is a positive relation between the exchange rate risk and interest rate with the data from December 1986 to January 2001. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1021243101272
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 14 (2003)
Issue (Month): 1 (January)
Pages: 19-27

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Handle: RePEc:kap:openec:v:14:y:2003:i:1:p:19-27

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Web page: http://www.springerlink.com/link.asp?id=100323

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Keywords: exchange rate risk; interest rate; GARCH; Turkey;

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References

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  1. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  2. Akcay, O. Cevdet & Alper, C. Emre & Karasulu, Meral, 1997. "Currency substitution and exchange rate instability: The Turkish case," European Economic Review, Elsevier, vol. 41(3-5), pages 827-835, April.
  3. Hakan Berument, 2005. "Measuring Monetary Policy for A Small Open Economy : Turkey," Departmental Working Papers 0509, Bilkent University, Department of Economics.
  4. Bruce Felmincham & Peter Mansfield, 1997. "Rationality and the Risk Premium on the Australian dollar," International Economic Journal, Taylor & Francis Journals, vol. 11(3), pages 47-59.
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Citations

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Cited by:
  1. Prakash Kannan, 2008. "Perspectiveson High Real Interest Rates in Turkey," IMF Working Papers 08/251, International Monetary Fund.
  2. Sunel, Enes, 2010. "On inflation, wealth inequality and welfare in emerging economies," MPRA Paper 25943, University Library of Munich, Germany.
  3. Kaya, Huseyin, 2013. "The yield curve and the macroeconomy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 32(C), pages 100-107.
  4. Hakan Berument & N. Nergiz Dincer, 2004. "The effects of exchange rate risk on economic performance: the Turkish experience," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2429-2441.
  5. Sunel, Enes, 2012. "Transitional Dynamics of Disinflation in a Small Open Economy with Heterogeneous Agents," MPRA Paper 39690, University Library of Munich, Germany.
  6. Kaya, Huseyin, 2013. "Forecasting the yield curve and the role of macroeconomic information in Turkey," Economic Modelling, Elsevier, vol. 33(C), pages 1-7.
  7. C. Emre Alper & K. Kazimov & A. Akdemir, 2007. "Forecasting the term structure of interest rates for Turkey: a factor analysis approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 77-85.
  8. Hakan Berument & Eray M. Yucel, 2005. "Return and maturity relationships for treasury auctions: evidence from Turkey," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 385-419, September.
  9. Tais Carestiato Da Silva & Helder Ferreira De Mendonça, 2011. "Setting The Interest Rate For Twooutlier Countries," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 207, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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