Determinants of interest rates in Turkey

Date
2001
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Source 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
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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.

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Published Version (Please cite this version)