Effects of monetary policy on the long memory in interest rates: Evidence from an emerging market

Abstract

We study the presence of long memory in a variety of interest rates in Turkey by time-varying generalized Hurst exponent. We reveal that adopting inflation targeting cause a sudden and considerable decrease in the long memory in interest rates. The improvement lasts till the collapse of Lehman Brothers in 2008 which is followed with an increased persistence in interest rates. Moreover, degree of long memory increases with maturity which is in contrast to economic theory. © 2013 Elsevier Ltd. All rights reserved.