Determinants of interest rates in Turkey
Date
2001Source Title
Russian and East European Finance and Trade
Print ISSN
1061-2009
Electronic ISSN
2328-6806
Publisher
Taylor & Francis, Ltd
Volume
37
Issue
1
Pages
5 - 16
Language
English
Type
ArticleItem Usage Stats
134
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263
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Abstract
This paper analyzes the Turkish Treasury interest rate behaviour within the Fisher
hypothesis framework for the period from 1988:11 to 1998:6. Consistent with the
hypothesis, empirical evidence indicates that the interest rates increase with expected
inflation. After the risk is controlled, the paper suggests that interest rates increase less
than expected inflation; that is, real interest rates decrease with higher inflation. Moreover,
inflation risk increases interest rates and decreases the maturity of government debt: This
is evidence that lenders prefer shorter maturity in order to hedge themselves in a setting
where the debt burden on the budget is on the rise. This may also indicate that both the
interest rates and maturity of the debt are used as policy tools by the Treasury rather than
as state variables.