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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12493.

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Date of creation: 2004
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Handle: RePEc:pra:mprapa:12493

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Related research

Keywords: structural vector autoregression models; SVAR; Turkey; impulse-response; foreign interest rate; macroeconomic performance;

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  1. Stephanie Schmitt-Grohe, 1995. "The international transmission of economic fluctuations: effects of U. S. business cycles on the Canadian economy," Finance and Economics Discussion Series 95-6, Board of Governors of the Federal Reserve System (U.S.).
  2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  3. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  4. Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers 1085, Cowles Foundation for Research in Economics, Yale University.
  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. 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.
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