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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: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2007/07-05
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    Cited by:

    1. 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.
    2. repec:cbk:journl:v:6:y:2017:i:2:p:45-64 is not listed on IDEAS
    3. 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.
    4. 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.
    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. 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.
    7. James L. Butkiewicz & Zeliha Ozdogan, 2013. "Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey," Working Papers 13-08, University of Delaware, Department of Economics.
    8. 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.
    9. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:303-318 is not listed on IDEAS

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