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The Term Structure of Interest Rate as a Predictor of Inflation and Real Economic Activity: Nonlinear Evidence from Turkey

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  • Omay, Tolga

Abstract

This study investigates whether the term structure of interest rates contains useful information about future real economic activity and inflation in Turkey during the 1991:7-2004:3 periods. In order to analyze these relationships, we have employed the Generalized Impulse Response (GIRF) analysis to the Logistic Smooth Transition Vector Autoregressive (LSTVAR) model. We have determined that the results of a GIRF analysis are consistent with the recursive Chow test and parameter stability tests. Besides, we have found out that the relationships between spread-real economic activity and spread-inflation are negative. These negative relationships have also been examined by GIRF analysis; because of a negative reverse relationship between Expectation Hypothesis and Interest Transmission Channel, a negative correlation between real economic activity and spread has occurred.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28572.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:28572

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Keywords: Term Structure of Interest Rates; Monetary Policy; LSTVAR; GIRF; Real Economic Activity; Inflation;

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