Interest Rate Pass-Through and Transmission Mechanism in Turkey

Year 2022, Volume: 10 Issue: 1, 46 - 54, 30.03.2022

Mortaza Ojaghlou , Begüm Kaya Söztanacı

Abstract

This paper studies the interest rates pass-through from changes in the official interest rate of the Central Bank of the Republic of Turkey (CBRT) to market interest rates in Turkey. In this context, we have collected six market interest rates series, such as bank rate (BR), lending rate (LR), deposit rate (DR), money market rate (MMR), Treasury bill rate (TBR) and the government bond yield (GBY). First, we conducted an analysis of the correlation of the series. Second, we examined the cointegration of the series and then used Bayesian vector autoregression to estimate the response of interest rates to the bank rate. The results show that there is a long-run relationship between the interest rates and there is a strong correlation between the bank interest rate and the third interest rates such as the money market rate, the deposit rate (DR) and the lending rate. There is a complete the pass-through between the bank rate and the landing rate. There is over pass-through between the money market rate and the bank rate and strong pass-through between the Treasury bill rate, the deposit rate and the bank rate. There is no pass-through between government bond yield and the bank rate.

Keywords

Interest Rate, Pass-Through, Monetary Transmission Mechanism, Monetary Policy

Supporting Institution

no application

Project Number

no application

Interest Rate Pass-Through and Monetary Transmission Mechanism in Turkey

Abstract

Bu çalışmada, Türkiye Cumhuriyet Merkez Bankası (TCMB) resmi faiz oranlarındaki değişikliklerin Türkiye'deki piyasa faiz oranlarına geçişkenliği incelenmektedir. Bu amaç doğrultusunda, mümkün olduğunca çeşitliliği fazla olan piyasa faiz oranları kullanılmıştır. Bu kapsamda Banka faizi (BR), borç verme faizi (LR), mevduat faizi (DR), para politika faizi (MMR), Hazine bonosu faizi (TBR) ve Devlet tahvili faizi ( GBY) olmak üzere altı piyasa faiz oranı analize dahil edilmiştir. Veri setimiz Ocak 2002-Mart 2021 dönemini kapsamaktadır. Daha önceki çalışmaları takiben birçok analiz seti uygulanmıştır. İlk olarak serilerin korelasyon analizini, ve sonra serilerin eşbütünleşikliği ve ardından Bayesian Vektör Otoregresyonu kullanılarak faiz oranlarının banka faiz oranına reaksiyonunu tahmin edilmektedir. Sonuçlara göre, faiz oranı arasında uzun dönemli bir ilişki olduğunu ve Banka faizi ile para piyasası oranı, mevduat oranı (DR) ve borç verme oranı gibi faiz oranlarının arasında güçlü bir korelasyon mevcuttur. Banka oranı ile depozit oranı arasında tam geçişkenlik olduğu tespit edilmiştir. Para piyasası faizi ile banka faizi arasında aşırı geçişkenlik, Hazine bonosu faizi, mevduat faizi ve banka faizi arasında güçlü geçişkenlik olduğu kanıtına varılmıştır. Devlet tahvili getirisi ile banka faizi arasında herhangi bir geçişkenliğe rastlanılmamıştır.

Keywords

Interest Rate, Pass-Through, Monetary Transmission Mechanism, Monetary Policy

Project Number

no application

References

• Alvarez, F., Lucas, R. E., & Weber, W. E. (2001). Interest Rates and Inflation. The American Economic Review, 91(2), 219–225.
• Aziakpono, M. J., & Wilson, M. K. (2013a). Interest Rate Pass-through and Monetary Policy Regimes in South Africa,. African Economic Research Consortium, Research Department., Working Papers 259.
• Aziakpono, M. J., & Wilson, M. K. (2013b). Interest Rate Pass-through and Monetary Policy Regimes in South Africa. In Working Papers (No. 259; Working Papers). African Economic Research Consortium, Research Department. https://ideas.repec.org/p/aer/wpaper/259.html
• Bernanke, B. (1993). Credit in the macroeconomy. Quarterly Review, 18(Spr), 50–70. Bernanke, B., & Gertler, M. (1989). Agency Costs, Net Worth, and Business Fluctuations. The American Economic Review, 79(1), 14–31. Bernanke, B. S., & Blinder, A. S. (1988). Credit, Money, and Aggregate Demand (Working Paper No. 2534; Working Paper Series). National Bureau of Economic Research. https://doi.org/10.3386/w2534
• Bernanke, B. S., & Blinder, A. S. (1992). The Federal Funds Rate and the Channels of Monetary Transmission. The American Economic Review, 82(4), 901–921.
• Bondt, G. J. de. (2005). Interest Rate Pass-Through: Empirical Results for the Euro Area. German Economic Review, 6(1), 37–78. https://doi.org/10.1111/j.1465-6485.2005.00121.x
• Bordo, M., & Landon-Lane, J. (2013). Does Expansionary Monetary Policy Cause Asset Price Booms; Some Historical and Empirical Evidence (NBER Working Paper No. 19585). National Bureau of Economic Research, Inc. https://econpapers.repec.org/paper/nbrnberwo/19585.htm
• Can, U., Bocuoglu, M. E., & Can, Z. G. (2020). How does the monetary transmission mechanism work? Evidence from Turkey. Borsa Istanbul Review, 20(4), 375–382. https://doi.org/10.1016/j.bir.2020.05.004
• Carriero, A. (n.d.). Separately, each of the two equations constitutes a restricted ADL model: Same #lags for both Y1,t and Y2,t in both equations. Current value of additional explanatory variable ("Xt ") is ruled out. 69.
• Christensen, J. H. E., & Rudebusch, G. D. (2012). THE RESPONSE OF INTEREST RATES TO US AND UK QUANTITATIVE EASING. The Economic Journal, 122(564), F385–F414.
• Christiano, L. J., Eichenbaum, M., & Evans, C. L. (1999). Monetary policy shocks: What have we learned and to what end? In Handbook of Macroeconomics (Vols. 1, Part A, pp. 65–148). Elsevier. https://ideas.repec.org/h/eee/macchp/1-02.html
• Coricelli, F., Égert, B., & MacDonald, R. R. (2006). Monetary Transmission Mechanism in Central and Eastern Europe: Gliding on a Wind of Change. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.949468
• Cottarelli, C., Ferri, G., & Generale, A. (1995). Bank Lending Rates and Financial Structure in Italy: A Case Study. Staff Papers - International Monetary Fund, 42(3), 670. https://doi.org/10.2307/3867536
• Doan, T., Litterman, R., & Sims, C. (1986). Forecasting and Conditional Projection Using Realistic Prior Distribution. Econometric Reviews, 3.
• Gambacorta, L. (2011). The Risks of Low Interest Rates. Revista ESPE - Ensayos Sobre Política EconÃ3mica, 29(64), 14–31. Giannone, D., Lenza, M., & Primiceri, G. (2015). Prior Selection for Vector Autoregressions. The Review of Economics and Statistics, 97(2), 436–451.
• Gopalan, S., & Rajan, R. S. (2017). Does foreign bank presence affect interest rate pass-through in emerging and developing economies? Journal of Macroeconomics, 54, 373–392. https://doi.org/10.1016/j.jmacro.2017.06.010
• Gregor, J., Melecký, A., & Melecký, M. (2019). INTEREST RATE PASS‐THROUGH: A META‐ANALYSIS OF THE LITERATURE. Journal of Economic Surveys, John Wiley & Sons, Ltd, 35(1), 141–191. https://doi.org/10.1111/joes.12393
• Hennecke, P. (2017). The interest rate pass-through in the low interest rate environment: Evidence from Germany (Working Paper No. 151). Thünen-Series of Applied Economic Theory - Working Paper. https://www.econstor.eu/handle/10419/157232
• Litterman, R. B. (1986). Forecasting with Bayesian Vector Autoregressions: Five Years of Experience. Journal of Business & Economic Statistics, 4(1), 25–38. JSTOR. https://doi.org/10.2307/1391384
• Marcellino, M., Carriero, A., & Clark, T. E. (2012). Real-time nowcasting with a Bayesian mixed frequency model with stochastic volatility (No. 1227; Working Papers (Old Series)). Federal Reserve Bank of Cleveland. https://ideas.repec.org/p/fip/fedcwp/1227.html
• Marotta, G. (2009). Structural breaks in the lending interest rate pass-through and the euro. Economic Modelling, 26(1), 191–205. https://doi.org/10.1016/j.econmod.2008.06.011
• Peersman, G., & Smets, F. (2001). The monetary transmission mechanism in the euro area: More evidence from VAR analysis (Working Paper Series No. 91). European Central Bank. https://econpapers.repec.org/paper/ecbecbwps/200191.htm
• Tai, P. N., Sek, S. K., & Har, W. M. (2012). Interest Rate Pass-Through and Monetary Transmission in Asia. International Journal of Economics and Finance, 4(2), p163. https://doi.org/10.5539/ijef.v4n2p163
• Taylor, J. B., & Williams, J. C. (2009). A Black Swan in the Money Market. American Economic Journal: Macroeconomics, 1(1), 58–83. https://doi.org/10.1257/mac.1.1.58
• van Els, P., Locarno, A., Mojon, B., & Morgan, J. (2003). New Macroeconomic Evidence on Monetary Policy Transmission in the Euro Area. Journal of the European Economic Association, 1(2/3), 720–730.
• Wang, K.-M., & Lee, Y.-M. (2009). Market volatility and retail interest rate pass-through. Economic Modelling, 26(6), 1270–1282. https://doi.org/10.1016/j.econmod.2009.06.002
• Winker, P. (1999). Sluggish adjustment of interest rates and credit rationing: An application of unit root testing and error correction modelling. Applied Economics, 31(3), 267–277. https://doi.org/10.1080/000368499324255
• Wu, T. (n.d.). On the Effectiveness of the Federal Reserve’s New Liquidity Facilities. 32.