THE CASUAL RELATIONSHIP BETWEEN INFLATION UNCERTAINTY AND INTEREST RATE IN TURKEY: ROLLING WINDOW CAUSALITY TEST
The aim of this study is to analyse the impact ofinflation uncertainty on the volatility of benchmark interest rate which is themarket indicator. In this context, the interest rate of two-year governmentbonds, which shows general interest rate in the economy and which occurs as aresult of the prefer...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Mehmet Akif Ersoy University
2018-12-01
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| Series: | Mehmet Akif Ersoy Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi |
| Subjects: | |
| Online Access: | https://dergipark.org.tr/en/download/article-file/607835 |
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| Summary: | The aim of this study is to analyse the impact ofinflation uncertainty on the volatility of benchmark interest rate which is themarket indicator. In this context, the interest rate of two-year governmentbonds, which shows general interest rate in the economy and which occurs as aresult of the preferences of decision-making units in the money market isconsidered as a basic variable. Inflation uncertainty is derived from ConsumerPrice Index (CPI) depending on Friedman’s Approach and is used as anexplanatory variable. Because the use of benchmark interest rate includes theknowledge regarding the behaviour of the market decision-making units toinflation and inflation uncertainty, the results obtained are of greatimportance with regards to the policy proposals. In this study, the effect of inflation uncertainty onthe volatility of benchmark interest rate is examined by the volatility andstructural break models for the period of 2005:M4-2016:M11. The findings of thestudy have shown that there is a causal relationship from inflation uncertaintyto interest rates between 2005:4 and 2006:5. Additionally, a causal relationfrom interest rates to inflation uncertainty is observed in the periods of2013:3 and 2015:12-2016:9. |
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| ISSN: | 2149-1658 |