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The impact of foreign interest rate on the macroeconomic performance of Turkey

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  • Eruygur, Aysegul

Abstract

In this study, we examine the effects of a shock in foreign interest rate on the macroeconomic performance of Turkey. We use two different structural vector autoregression models (SVAR) and specify them differently for the pre and post 2001:6 period. Based on the results of the SVAR models we conclude that, for the period before 2001:6 a positive foreign interest rate shock appreciates the real exchange rate, decreases the inflation rate, the domestic interest rate and the income. This last effect occurs when the domestic interest rates are excluded from the model, but when they are included the effect on income is positive. After 2001:6, we find that the real exchange rate depreciates, the income decreases, the inflation rate, and the domestic interest rate increases; although this last effect is very small.

Suggested Citation

  • Eruygur, Aysegul, 2004. "The impact of foreign interest rate on the macroeconomic performance of Turkey," MPRA Paper 12493, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:12493
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    References listed on IDEAS

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    1. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    2. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    3. Schmitt-Grohe, Stephanie, 1998. "The international transmission of economic fluctuations:: Effects of U.S. business cycles on the Canadian economy," Journal of International Economics, Elsevier, vol. 44(2), pages 257-287, April.
    4. Hakan Berument & Zubeyir Kilinc, 2004. "The effect of foreign income on economic performance of a small-open economy: evidence from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 11(8), pages 483-488.
    5. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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    Cited by:

    1. Syafrida Hani & Elizar Sinambela, 2021. "Indonesia s Bank Response of Interest Rates to the Prices of World Crude Oil and Foreign Rates of Interest," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 558-564.

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    More about this item

    Keywords

    structural vector autoregression models; SVAR; Turkey; impulse-response; foreign interest rate; macroeconomic performance;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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