IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The interest rate–inflation relationship under an inflation targeting regime: The case of Turkey

Author Info

Listed author(s):
  • Kose, Nezir
  • Emirmahmutoglu, Furkan
  • Aksoy, Sezgin

Abstract

This paper examines the relationship between nominal interest rates and the expected inflation rate for the Turkish economy between 2002 and 2009, a period when the inflation-targeting regime was implemented as monetary policy. We use the test of cointegrating rank with a trend-break (a method introduced by Inoue, 1999) and we also apply exogeneity tests. Empirical findings indicate that monetary policy rates depend on inflationary expectations; long-term interest rates are affected by monetary policy; and the weak form of the Fisher effect is valid. This evidence implies that monetary policy has actually influenced the real long-term interest rates; the inflation targeting regime pursued by the Central Bank of Turkey is reliable; and hence realized inflation has remained close to its targeted level.

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.sciencedirect.com/science/article/pii/S1049007812000358
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 4 ()
Pages: 476-485

as
in new window

Handle: RePEc:eee:asieco:v:23:y:2012:i:4:p:476-485
DOI: 10.1016/j.asieco.2012.03.001
Contact details of provider: Web page: http://www.elsevier.com/locate/asieco

Keywords: Inflation targeting; Fisher effect; Term structure of interest rates; Cointegration with breaks; Exogeneity test;

Find related papers by JEL classification:

  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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. A. Hakan Kara, 2008. "Turkish Experience With Implicit Inflation Targeting," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 8(1), pages 1-16.
  2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
  3. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  4. James Payne & Bradley Ewing, 1997. "Evidence from lesser developed countries on the Fisher hypothesis: a cointegration analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 4(11), pages 683-687.
  5. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
  6. Cem Akyurek & Ali M Kutan, 2008. "Inflation Targeting, Policy Rates and Exchange Rate Volatility: Evidence from Turkey," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 50(3), pages 460-493, September.
  7. Inoue, Atsushi, 1999. "Tests of cointegrating rank with a trend-break," Journal of Econometrics, Elsevier, vol. 90(2), pages 215-237, June.
  8. Gerlach, Richard & Wilson, Patrick & Zurbruegg, Ralf, 2006. "Structural breaks and diversification: The impact of the 1997 Asian financial crisis on the integration of Asia-Pacific real estate markets," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 974-991, October.
  9. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
  10. Ky-Hyang Yuhn, 1996. "Is the Fisher effect robust? Further evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 3(1), pages 41-44.
  11. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, vol. 22(02), pages 279-303, April.
  12. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
  13. Erdem Basci & Özgür Özel & Cagri Sarikaya, 2008. "The monetary transmission mechanism in Turkey: new developments," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 475-499 Bank for International Settlements.
  14. Hasan Ersel & Fatih Ãzatay, 2008. "Fiscal Dominance and Inflation Targeting: Lessons from Turkey," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(6), pages 38-51, November.
  15. Chen, Cathy W.S. & Gerlach, Richard & Cheng, Nick Y.P. & Yang, Y.L., 2009. "The impact of structural breaks on the integration of the ASEAN-5 stock markets," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(8), pages 2654-2664.
  16. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  17. H.a. Mitchell-innes & M.j. Aziakpono & A.p. Faure, 2007. "Inflation Targeting And The Fisher Effect In South Africa: An Empirical Investigation," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 693-707, December.
  18. Hakan Berument & Mohamed Mehdi Jelassi, 2002. "The Fisher hypothesis: a multi-country analysis," Applied Economics, Taylor & Francis Journals, vol. 34(13), pages 1645-1655.
  19. Peersman, Gert, 2002. "Monetary policy and long term interest rates in Germany," Economics Letters, Elsevier, vol. 77(2), pages 271-277, October.
  20. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  21. Olcay Çulha & Ali Çulha & Rauf Gönenç, 2008. "The Challenges of Monetary Policy in Turkey," OECD Economics Department Working Papers 646, OECD Publishing.
  22. Tore Ellingsen & Ulf Soderstrom, 2001. "Monetary Policy and Market Interest Rates," American Economic Review, American Economic Association, vol. 91(5), pages 1594-1607, December.
  23. Ekrem Gul & Sezgin Acikalin, 2008. "An examination of the Fisher Hypothesis: the case of Turkey," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3227-3231.
  24. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  25. Mehtap Kesriyeli, 1994. "Policy Regime Changes and Testing for the Fisher and UIP Hypotheses : The Turkish Evidence," Discussion Papers 9411, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
Full references (including those not matched with items on IDEAS)

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

as
in new window


Cited by:

  1. Razmi, Fatemeh & Azali, M. & Chin, Lee & Shah Habibullah, Muzafar, 2016. "The role of monetary transmission channels in transmitting oil price shocks to prices in ASEAN-4 countries during pre- and post-global financial crisis," Energy, Elsevier, vol. 101(C), pages 581-591.
  2. Razmi, Fatemeh & Mohamed, Azali & Chin, Lee & Habibullah, Muzafar Shah, 2015. "The role of monetary policy in macroeconomic volatility of ASEAN-4 countries against oil price shock over time," MPRA Paper 65714, University Library of Munich, Germany.
  3. Burak Güriş & Yaşar Yaşgül, 2015. "Does the Fisher hypothesis hold for the G7 countries? Evidence from ADL threshold cointegration test," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(6), pages 2549-2557, November.
  4. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.
  5. Fatemeh Razmi & Azali Mohamed & Lee Chin & Muzafar Shah Habibullah, 2015. "The Role of Monetary Policy in Macroeconomic Volatility of Association of Southeast Asian Nations-4 Countries against Oil Price Shock over Time," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 731-737.

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

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:23:y:2012:i:4:p:476-485. 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: (Dana Niculescu)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.