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Perspectiveson High Real Interest Rates in Turkey

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  • 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.

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Bibliographic Info

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

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

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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;

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Citations

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Cited by:
  1. Caroline Van Rijckeghem, 2010. "Determinants of Private Saving in Turkey: An Update," Working Papers 2010/04, Bogazici University, Department of Economics.
  2. Dani Rodrik, 2009. "The Turkish Economy After The Crisis," Working Papers 2009/9, Turkish Economic Association.
  3. Dani Rodrik, 2012. "The Turkish Economy after the Global Financial Crisis," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 1(1), pages 41-61, January.
  4. 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].
  5. Mihai Macovei, 2009. "Growth and economic crises in Turkey: leaving behind a turbulent past?," European Economy - Economic Papers 386, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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