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Perspectives on High Real Interest Rates in Turkey

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  • Prakash Kannan

Abstract

The Turkish economy is typically characterized as having particularly high real interest rates. Fundamental considerations, such as high growth rates or high returns to capital, do not provide a satisfactory resolution of this puzzle. Instead, we find that two other factors- doubts about the sustainability of disinflation and the existence of a risk premium-have a significant impact on the level of real interest rates in Turkey. Importantly, fiscal policy variables are shown to affect both these factors, suggesting that a more credible and prudent fiscal policy can help reduce real interest rates in Turkey.

Suggested Citation

  • Prakash Kannan, 2008. "Perspectives on High Real Interest Rates in Turkey," IMF Working Papers 08/251, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/251
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    Cited by:

    1. Mihai Macovei, 2009. "Growth and economic crises in Turkey: leaving behind a turbulent past?," European Economy - Economic Papers 2008 - 2015 386, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Dani Rodrik, 2009. "The Turkish Economy After The Crisis," Working Papers 2009/9, Turkish Economic Association.
    3. World Bank, 2014. "Turkey Public Finance Review : Turkey in Transition--Time for a Fiscal Policy Pivot?," World Bank Other Operational Studies 19321, The World Bank.
    4. Tais Carestiato Da Silva & Helder Ferreira De Mendonça, 2011. "Setting The Interest Rate For Twooutlier Countries," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 207, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Dani Rodrik, 2012. "The Turkish Economy after the Global Financial Crisis," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 1(1), pages 41-61, January.
    6. Caroline Van Rijckeghem, 2010. "Determinants of Private Saving in Turkey: An Update," Working Papers 2010/04, Bogazici University, Department of Economics.

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    Keywords

    Disinflation; Economic models; Foreign exchange; Fiscal policy; Real interest rates; Risk premium; Turkey; inflation; real rates; real interest rate; Marginal Product of Capital;

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