Advanced Search
MyIDEAS: Login to save this paper or follow this series

Perspectiveson High Real Interest Rates in Turkey

Contents:

Author Info

  • Prakash Kannan

Abstract

The Turkish economy is typically characterized as having particularly high real interest rates. Fundamental considerations, such as high growth rates or high returns to capital, do not provide a satisfactory resolution of this puzzle. Instead, we find that two other factors- doubts about the sustainability of disinflation and the existence of a risk premium-have a significant impact on the level of real interest rates in Turkey. Importantly, fiscal policy variables are shown to affect both these factors, suggesting that a more credible and prudent fiscal policy can help reduce real interest rates in Turkey.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=22433
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/251.

as in new window
Length: 31
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/251

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Turkey; Real interest rates; Risk premium; Disinflation; Economic models; inflation; real rates; real interest rate; foreign exchange; inflation rate; nominal interest rates; rational expectations; inflation process; inflation rates; high inflation; rates of return; monetary economics; rate of return; investors; inflation forecasts; relative price; expected value; diminishing returns; nominal variables; rate of investment; investment decisions; information asymmetry; nominal interest rate; relative prices; high interest rates; real variables; outstanding debt; inflation stabilization;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Froot, Kenneth A. & Frankel, Jeffrey A., 1988. "Forward Discount Bias: Is It an Exchange Risk Premium?," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt5w65g4zg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Caselli, Francesco, 2005. "Accounting for Cross-Country Income Differences," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages 679-741 Elsevier.
  3. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers, Department of Economics, Williams College 2001-11, Department of Economics, Williams College.
  4. Kaminsky, G.L. & Leiderman, L., 1996. "High Real Interest Rates in the Aftermath of Disinflation: Is It a Lack of Credibility," Papers, Tel Aviv 8-96, Tel Aviv.
  5. Hakan Berument & Asli Günay, 2003. "Exchange Rate Risk and Interest Rate: A Case Study for Turkey," Open Economies Review, Springer, Springer, vol. 14(1), pages 19-27, January.
  6. Olivier Jeanne & Pierre-Olivier Gourinchas, 2005. "Capital Flows to Developing Countries: the Allocation Puzzle," 2005 Meeting Papers, Society for Economic Dynamics 240, Society for Economic Dynamics.
  7. Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 385-423.
  8. Feldstein, Martin S, 1976. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 66(5), pages 809-20, December.
  9. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 195-232.
  10. Krasker, William S., 1980. "The `peso problem' in testing the efficiency of forward exchange markets," Journal of Monetary Economics, Elsevier, Elsevier, vol. 6(2), pages 269-276, April.
  11. Olivier J. Blanchard & Lawrence H. Summers, 1984. "Perspectives on High World Real Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 273-334.
  12. Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  14. Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
  15. Hodrick, Robert J. & Srivastava, Sanjay, 1986. "The covariation of risk premiums and expected future spot exchange rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 5(1, Supple), pages S5-S21, March.
  16. Lewis, Karen K, 1989. "Changing Beliefs and Systematic Rational Forecast Errors with Evidence from Foreign Exchange," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 621-36, September.
  17. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 14(3), pages 319-338, November.
  18. Martin D. D. Evans, 1998. "Real Rates, Expected Inflation, and Inflation Risk Premia," Journal of Finance, American Finance Association, American Finance Association, vol. 53(1), pages 187-218, 02.
  19. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, Elsevier, vol. 3(2), pages 123-192, June.
  20. Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
  21. Thomas Laubach and John C. Williams, 2001. "Measuring the Natural Rate of Interest," Computing in Economics and Finance 2001, Society for Computational Economics 35, Society for Computational Economics.
  22. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(5), pages 829-53, October.
  23. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 92-96, May.
  24. John F. O. Bilson, 1980. "The "Speculative Efficiency" Hypothesis," NBER Working Papers 0474, National Bureau of Economic Research, Inc.
  25. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 71, pages 280.
  26. Hakan Berument & Kamuran Malatyali, 1999. "Determinants of interest rates in Turkey," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 9902, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  27. Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
  28. Longworth, David, 1981. "Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium," Journal of Finance, American Finance Association, American Finance Association, vol. 36(1), pages 43-49, March.
  29. Lorenzo Giorgianni, 1997. "Foreign Exchange Risk Premium," IMF Working Papers 97/39, International Monetary Fund.
  30. Erdem Bas�I & Mehmet Fatih Ekinci, 2005. "Bond Premium in Turkey : Inflation Risk or Default Risk?," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 41(2), pages 25-40, March.
  31. Erdem Basci, 2002. "Bond Premium in Turkey," Departmental Working Papers, Bilkent University, Department of Economics 0207, Bilkent University, Department of Economics.
  32. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 1-25, January.
  33. Buraschi, Andrea & Jiltsov, Alexei, 2005. "Inflation risk premia and the expectations hypothesis," Journal of Financial Economics, Elsevier, Elsevier, vol. 75(2), pages 429-490, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of 207, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. World Bank, 2014. "Turkey Public Finance Review : Turkey in Transition--Time for a Fiscal Policy Pivot?," World Bank Other Operational Studies 19321, The World Bank.
  3. Caroline Van Rijckeghem, 2010. "Determinants of Private Saving in Turkey: An Update," Working Papers, Bogazici University, Department of Economics 2010/04, Bogazici University, Department of Economics.
  4. Mihai Macovei, 2009. "Growth and economic crises in Turkey: leaving behind a turbulent past?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 386, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Dani Rodrik, 2009. "The Turkish Economy After The Crisis," Working Papers, Turkish Economic Association 2009/9, Turkish Economic Association.
  6. Dani Rodrik, 2012. "The Turkish Economy after the Global Financial Crisis," Ekonomi-tek - International Economics Journal, Turkish Economic Association, Turkish Economic Association, vol. 1(1), pages 41-61, January.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:08/251. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.