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The Term Structure of Interest Rate as a Predictor of Inflation and Real Economic Activity: Nonlinear Evidence from Turkey

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  • Omay, Tolga

Abstract

This study investigates whether the term structure of interest rates contains useful information about future real economic activity and inflation in Turkey during the 1991:7-2004:3 periods. In order to analyze these relationships, we have employed the Generalized Impulse Response (GIRF) analysis to the Logistic Smooth Transition Vector Autoregressive (LSTVAR) model. We have determined that the results of a GIRF analysis are consistent with the recursive Chow test and parameter stability tests. Besides, we have found out that the relationships between spread-real economic activity and spread-inflation are negative. These negative relationships have also been examined by GIRF analysis; because of a negative reverse relationship between Expectation Hypothesis and Interest Transmission Channel, a negative correlation between real economic activity and spread has occurred.

Suggested Citation

  • Omay, Tolga, 2008. "The Term Structure of Interest Rate as a Predictor of Inflation and Real Economic Activity: Nonlinear Evidence from Turkey," MPRA Paper 28572, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:28572
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Term Structure of Interest Rates; Monetary Policy; LSTVAR; GIRF; Real Economic Activity; Inflation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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