Market-Based Measurement of Expectations on Short-Term Rates in Turkey
This paper aims to serve two purposes. First, it evaluates the ability of various financial market instruments to capture market expectations on short-term rate. Second, it proposes an alternative approach to obtain estimates of term premium inherent in alternative returns. Empirical results reveal that Turkish lira (TRY) returns implied by USD/TRY forward rates dominate all other return types for predicting the overnight interbank repo rate, followed by TRY interbank bid rate. Moreover, these return types are found to contain the lowest and least volatile term premium. However, forecasting ability of returns declines significantly with the introduction of the new policy framework by the Central Bank of Turkey, which utilizes “controlled degree of uncertainty” in o/n rates as an additional tool. In the recent period TRY interbank bid and ask rates stand out as returns with the highest ability to represent market expectations.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (90 312) 507 5000
Fax: (90 312) 507 5640
Web page: http://www.tcmb.gov.tr
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:tcb:wpaper:1305. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ozlem Ekmekciler Ramalho Rocha)or (Ilker Cakar)
If references are entirely missing, you can add them using this form.