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Exchange Rate Risk and Interest Rate : A Case Study for Turkey

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  • Hakan Berument

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  • Asli GŸnay

Abstract

This paper examines the effect of exchange rate risk on interest rates within the uncovered interest rate parity condition for Turkey. When the interest rate is measured with the Treasury auction interest rate and the exchange rate risk is measured with the conditional variance of the exchange rate, then we found that there is a positive relation between the exchange rate risk and interest rate with the data from December 1986 to January 2001. Copyright Kluwer Academic Publishers 2003
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Suggested Citation

  • Hakan Berument & Asli GŸnay, 2001. "Exchange Rate Risk and Interest Rate : A Case Study for Turkey," Working Papers 0110, Department of Economics, Bilkent University.
  • Handle: RePEc:bil:wpaper:0110
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    File URL: http://www.bilkent.edu.tr/~economics/hber122001.doc
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    References listed on IDEAS

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    1. Bruce Felmincham & Peter Mansfield, 1997. "Rationality and the Risk Premium on the Australian dollar," International Economic Journal, Taylor & Francis Journals, vol. 11(3), pages 47-59.
    2. Akcay, O. Cevdet & Alper, C. Emre & Karasulu, Meral, 1997. "Currency substitution and exchange rate instability: The Turkish case," European Economic Review, Elsevier, vol. 41(3-5), pages 827-835, April.
    3. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. repec:spr:pharme:v:4:y:2014:i:1:p:71-79 is not listed on IDEAS
    2. C. Emre Alper & K. Kazimov & A. Akdemir, 2007. "Forecasting the term structure of interest rates for Turkey: a factor analysis approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 77-85.
    3. Arslanturk, Yalcin & Balcilar, Mehmet & Ozdemir, Zeynel Abidin, 2011. "Time-varying linkages between tourism receipts and economic growth in a small open economy," Economic Modelling, Elsevier, vol. 28(1-2), pages 664-671, January.
    4. Kasman, Adnan & Ayhan, Duygu, 2008. "Foreign exchange reserves and exchange rates in Turkey: Structural breaks, unit roots and cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 83-92, January.
    5. Sunel, Enes, 2010. "On inflation, wealth inequality and welfare in emerging economies," MPRA Paper 25943, University Library of Munich, Germany.
    6. Arif Oduncu & Yasin Akcelik & Ergun Ermisoglu, 2013. "Reserve Options Mechanism : A New Macroprudential Tool to Limit the Adverse Effects of Capital Flow Volatility on Exchange Rates," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(3), pages 45-60.
    7. Kaya, Huseyin, 2013. "Forecasting the yield curve and the role of macroeconomic information in Turkey," Economic Modelling, Elsevier, vol. 33(C), pages 1-7.
    8. Prakash Kannan, 2008. "Perspectives on High Real Interest Rates in Turkey," IMF Working Papers 08/251, International Monetary Fund.
    9. Sunel, Enes, 2012. "Transitional Dynamics of Disinflation in a Small Open Economy with Heterogeneous Agents," MPRA Paper 39690, University Library of Munich, Germany.
    10. Ergun Ermisoglu & Yasin Akcelik & Arif Oduncu & Temel Taskin, 2014. "Effects of additional monetary tightening on exchange rates," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 71-79, June.
    11. Süleyman DEĞİRMEN & Filiz ÖZAĞ, 2007. "Banka Sermaye Kanalı Mevcudiyeti: Türk Bankacılık Sektörü İçin Bir Analiz," Ekonomik Yaklasim, Ekonomik Yaklasim Association, vol. 18(63), pages 29-54.
    12. Kaya, Huseyin, 2013. "The yield curve and the macroeconomy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 32(C), pages 100-107.

    More about this item

    Keywords

    Exchange rate risk; Interest rate; GARCH and Turkey;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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