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Response of Turkish Financial Markets to Negative Interest Rate Announcements of the ECB

Listed author(s):
  • Gokhan Sahin Gunes

    ()

    (Koc University-TUSIAD ERF and Koc University)

  • Sumru Oz

    ()

    (Koc University-TUSIAD ERF)

Registered author(s):

    This paper examines the impact of negative interest rate announcements of the ECB on Turkish financial markets. Negative Interest Rate Policies (NIRP) are expected to affect emerging market and developing economies (EMDEs) through an increase in the inflow of capital searching for higher yields. The expectation for an increase in short-term capital inflows to an EMDE might have transmission channels to the whole economy similar to those of expansionary monetary policies, except for a sign change in case of the exchange rate channel. The rest of the transmission channels are portfolio, interest rate, and credit channels. The latter is excluded from the analysis since it takes time to realize. Accordingly, we analyze the impact of negative interest rate announcements of the ECB on EUR/TRY and USD/TRY exchange rates; 1-month and 3-month TRLibor rates; BIST 100 Index, as well as 2-year and 10-year bond returns using GARCH (1,1) model. The results show that the announcements significantly affect both the volatility of Turkey's financial indicators and their returns especially through interest rate and portfolio channels. The robustness of the results on volatility is tested by using an event study.

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1614.pdf
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    Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1614.

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    Length: 14 pages
    Date of creation: Dec 2016
    Handle: RePEc:koc:wpaper:1614
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    1. Yavuz ARSLAN & Temel TAŞKIN, 2014. "International Evidence on the Interaction between Cross-Border Capital Flows and Domestic Credit Growth," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(341), pages 37-56.
    2. Philip R. Lane & Peter McQuade, 2014. "Domestic Credit Growth and International Capital Flows," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 218-252, 01.
    3. Michael Ehrmann & Marcel Fratzscher, 2009. "Global Financial Transmission of Monetary Policy Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 739-759, December.
    4. Arteta,Carlos & Kose,Ayhan & Stocker,Marc & Taskin,Temel, 2016. "Negative interest rate policies : sources and implications," Policy Research Working Paper Series 7791, The World Bank.
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