Rethinking interest rate volatility as a macroprudential policy tool

Date
2016
Advisor
Instructor
Source Title
Middle East Development Journal
Print ISSN
1793-8120
Electronic ISSN
1793-8171
Publisher
Routledge
Volume
8
Issue
1
Pages
109 - 126
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract

Along with most other central banks, Turkey’s central bank has implemented unconventional policies since the 2007/2008 financial crisis. Financial stability has been one of the targets of these macroprudential policies. However, since Turkey is working toward this goal without increasing its inflation rate, tracking only short-term interest rates to measure this policy’s effectiveness would be inefficient. In this paper, we provide empirical evidence from Turkey that interbank interest rate volatility can be an additional tool for monetary policy makers to help achieve the goal of financial stability. Impulse responses generated from the Vector Autoregressive models indicate that interest rate volatility increases interest rates, depreciates domestic currency and decreases credit growth and output. Its statistically insignificant effect on prices is open to interpretation.

Course
Other identifiers
Book Title
Keywords
Economics, Monetary policy, Interest rate volatility, Macroprudential policies
Citation
Published Version (Please cite this version)