The Effect of Changes in Interest Rates on Investments During the Inflation Targeting Policy Process in Türkiye: Time Series Analysis

The main purpose of this study is to examine the development of private sector investments in Turkey over time from the 2000s to the present and to test the effect of interest rates on private sector investments in Turkey. One of the distinctive aims of the study is to differentiate the effects of the inflationary process experienced since 2014 and the subsequent interest rate reduction policies on private sector investments. In this context, the relationship between investments and interest rates in Turkey between the 2002-Q1 and 2022-Q3 periods is examined with VAR Granger Causality analysis. At the same time, impulse-response analyzes were conducted between variables. Finally, variance decomposition analysis was also performed in this study. As a result, a causal relationship was found between real interest rates and private sector investments in the period we examined. In other words, during the inflation targeting regime, private sector investments are very sensitive to changes in interest rates. According to variance decomposition analysis, in the short term, changes in national income strongly explain changes in investments. On the other hand, in the long run, it seems that changes in interest rates on investments have more explanatory power.