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Interest Rate Pass-Through in Turkey

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  • Halil Ibrahim Aydin

Abstract

We examine the speed and rate of adjustment of lending rates to monetary policy rate for corporate, housing, cash and automobile loans using bank-level micro data. We show that empirical results on unit root, co-integration tests and the estimation of co-integrating vector improve when we allow cross-sectional dependence. We find evidence in favor of central bank control over credit market via short-term interest rates, which is more apparent in the post-credit boom period. Estimation results reveal that while corporate loans are not sensitive to changes in the policy rate, cash and automobile loan rates are responsive to the policy rate. Housing loans, on the other hand, display excessive sensitivity to the policy rate.

Suggested Citation

  • Halil Ibrahim Aydin, 2007. "Interest Rate Pass-Through in Turkey," Working Papers 0705, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:0705
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2007/07-05
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    Citations

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    Cited by:

    1. Erdem Basci & Özgür Özel & Cagri Sarikaya, 2008. "The monetary transmission mechanism in Turkey: new developments," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 475-499, Bank for International Settlements.
    2. Mordi, Charles N. O. & Adebiyi, Michael A. & Omotosho, Babatunde S., 2019. "Modelling interest rates pass-through in Nigeria: An error correction approach with asymmetric adjustments and structural breaks," MPRA Paper 96171, University Library of Munich, Germany.
    3. James L Butkiewicz & Zeliha Ozdogan, 2014. "Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey," Middle East Development Journal, Taylor & Francis Journals, vol. 6(1), pages 66-83, January.
    4. S. Burcu Avci & Eray Yucel, 2017. "Effectiveness of monetary policy: evidence from Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 179-213, August.
    5. Sheikh Khurram Fazal & Muhammad Abdus Salam, 2013. "Interest Rate Pass-Through: Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 39-62, Jan-June.
    6. Ebru Yüksel & Kıvılcım Metin Özcan, 2013. "Interest rate pass-through in Turkey and impact of global financial crisis: asymmetric threshold cointegration analysis," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(1), pages 98-113, February.
    7. Pelin Öge Güney, 2023. "Interest Rate Uncertainty and Macroeconomics in Turkey," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(2), pages 184-204.
    8. Neslihan Turguttopbas, 2017. "Perspectives on Monetary Policy and Cost of Capital: Evidence from Turkey," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 6(2), pages 45-64.
    9. Moid U. Ahmad, 2015. "Does CRR and Repo Change Affect Corporate Output?," Jindal Journal of Business Research, , vol. 4(1-2), pages 115-125, June.
    10. A.H. Ahmad & Nusrate Aziz & Shahina Rummun, 2013. "Interest Rate Pass-Through in the UK: Has the Transmission Mechanism Changed During the Financial Crisis?," Economic Issues Journal Articles, Economic Issues, vol. 18(1), pages 17-38, March.
    11. Kenneth J. Kopecky & David D. Van Hoose, 2012. "Imperfect Competition in Bank Retail Markets, Deposit and Loan Rate Dynamics, and Incomplete Pass Through," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1185-1205, September.
    12. Dilem Yildirim, 2012. "Interest Rate Pass-Through to Turkish Lending Rates: A Threshold Cointegration Analysis," ERC Working Papers 1207, ERC - Economic Research Center, Middle East Technical University, revised Sep 2012.
    13. Li, Xiao-Lin & Si, Deng-Kui & Ge, Xinyu, 2021. "China’s interest rate pass-through after the interest rate liberalization: Evidence from a nonlinear autoregressive distributed lag model," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 257-274.
    14. Moid U. AHMAD & Shamima NASRIN, 2017. "An analysis of the effect of monetary policy changes on macroeconomic factors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(611), S), pages 303-318, Summer.
    15. Nguyen Van Huong & Dang Quy Duong & Do Thi Thu Thuy, 2020. "The Impacts of Human Resources and Foreign Direct Investments to Vietnam’s Economic Growth," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 8(4), pages 125-125, March.
    16. Zulkhibri, Muhamed, 2012. "Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions," Journal of Asian Economics, Elsevier, vol. 23(4), pages 409-422.

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