THE CASUAL RELATIONSHIP BETWEEN INFLATION UNCERTAINTY AND INTEREST RATE IN TURKEY: ROLLING WINDOW CAUSALITY TEST

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Ceylan F., Tuzun O., Ekinci R., Erem Ceylan I.

JOURNAL OF MEHMET AKIF ERSOY UNIVERSITY ECONOMICS AND ADMINISTRATIVE SCIENCES FACULTY, vol.5, no.3, pp.977-990, 2018 (ESCI)

• Publication Type: Article / Article
• Volume: 5 Issue: 3
• Publication Date: 2018
• Doi Number: 10.30798/makuiibf.420613
• Journal Name: JOURNAL OF MEHMET AKIF ERSOY UNIVERSITY ECONOMICS AND ADMINISTRATIVE SCIENCES FACULTY
• Journal Indexes: Emerging Sources Citation Index (ESCI)
• Page Numbers: pp.977-990
• Keywords: Inflation Uncertainty, Interest Rate, Time-Varying Causality Test, REAL INTEREST-RATES, RETURNS, FISHER, COINTEGRATION, IMPACT
• Dokuz Eylül University Affiliated: Yes

Abstract

The aim of this study is to analyse the impact of inflation uncertainty on the volatility of benchmark interest rate which is the market indicator. In this context, the interest rate of two-year government bonds, which shows general interest rate in the economy and which occurs as a result of the preferences of decision-making units in the money market is considered as a basic variable. Inflation uncertainty is derived from Consumer Price Index (CPI) depending on Friedman's Approach and is used as an explanatory variable. Because the use of benchmark interest rate includes the knowledge regarding the behaviour of the market decision-making units to inflation and inflation uncertainty, the results obtained are of great importance with regards to the policy proposals.