Research Article
BibTex RIS Cite

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

Year 2018, Volume: 5 Issue: 3, 977 - 990, 27.12.2018
https://doi.org/10.30798/makuiibf.420613

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.



In this study, the effect of inflation uncertainty on
the volatility of benchmark interest rate is examined by the volatility and
structural break models for the period of 2005:M4-2016:M11. The findings of the
study have shown that there is a causal relationship from inflation uncertainty
to interest rates between 2005:4 and 2006:5. Additionally, a causal relation
from interest rates to inflation uncertainty is observed in the periods of
2013:3 and 2015:12-2016:9.

References

  • BERUMENT, H., 1999, The Impact of Inflation Uncertainty on Interest Rates in the UK, Scottish Journal of Political Economy 46(20), 207-18.
  • BERUMENT, H. & JELASSI, M.M. (2002). The Fisher Hypothesis: A Multi-Country Analysis, Applied Economics. 34: 1645-1655.
  • BERUMENT, KILINÇ, H., Z. & ÖZLALE, U. (2005). The Missing Link between Inflation Uncertainty and Interest Rates, Scottish Journal of Political Economy. 52: 222-241.
  • BERUMENT, H., CEYLAN, N. B., & OLGUN, H. (2007). Inflation uncertainty and interest rates: is the Fisher relation universal? Applied Economics, 39(1), 53-68.
  • BLANCHARD, O. (2003). Monetary Policy and Unemployment. In Remarks at the Conference" Monetary Policy and the Labour Market: A Conference in Honor of James Tobin", New School University.
  • BOLLERSLEV, T. (1986). “Generalized Autoregressive Conditional Heteroscedasticity”, Journal of Econometrics, 31: 307-327.
  • BOMBERGER, W. A., & FRAZER, W. J. (1981). Interest rates, uncertainty and the Livingston data. The Journal of Finance, 36(3), 661-675.
  • BOUDOUKH, J. & RİCHARDSON, M. (1993). “Stock Returns and İnflation: A Long Horizon Perspective,” American Economic Review, 83: 1346-55.
  • BRENNER, M., & LANDSKRONER, Y. (1983). Inflation uncertainties and returns on bonds. Economica, 50(200), 463-468.
  • CEYLAN, N., B. (2006). Faiz Oranı ve Enflasyon Belirsizligi Iliskisi, Journal of Iktisat Isletme ve Finans, (240), 98.
  • CHAN, L. K.C. (1994). "Consumption, Inflation Risk, and Real Interest Rates: An Empirical Analysis", Journal of Business 67 (1): 69-96.
  • DOLADO, J. J., & LUTKEPOHL, H. (1996). Making Wald tests work for cointegrated VAR systems. Econometric Reviews, 15(4), 369-386.
  • FAMA, E. F. (1975). Short-term interest rates as predictors of inflation. The American Economic Review, 269-282.
  • FAMA, E. F., & SCHWERT, G. W. (1977). Asset returns and inflation. Journal of financial economics, 5(2), 115-146.
  • FAMA, E. F., & GıBBONS, M. R. (1982). Inflation, real returns and capital investment. Journal of Monetary Economics, 9(3), 297-323.
  • FRIEDMAN, M. (1977). “Nobel Lecture: Inflation and Unemployment,” Journal of Political Economy, 85: 451–72.
  • GREGORY, A.W., HANSEN, B. (1996). “Residual-Based Tests for Cointegration in Models with Regime Shifts”, Journal of Econometrics, 70: 99-126.
  • HAHN, F. H. (1970). “Savings and Uncertainty,” Review of Economic Studies, 37: 21–4.
  • HARTMAN, R., & MAKIN, J. H. (1982). “Inflation Uncertainty and Interest Rates: Theory and Empirical Tests.” NBER Working Paper 906.
  • HATEMI-J, (2008). “Tests for Cointegration with Two Unknown Regime Shifts with an Application to Financial Market Integration”, Empirical Economics, 35: 497-505.
  • HILL, J. B. (2007). “Efficient Tests of Long-Run Causation in Trivariate VAR Processes with a Rolling Window Study of the Money-Income Relationship”, Journal of Applied Econometrics, 22: 747–765.
  • JUSTER, F. T. & TAYLOR, D. (1975). “Towards a Theory of Saving Behavior”, American Economic Review, 65: 203–9.
  • JUSTER, F. T. & WACHTEL, P. (1972a). “Inflation and The Consumer”, Brookings Papers on Economic Activity, 1: 71–114.
  • JUSTER, F. T. & WACHTEL, P. (1972b). “A Note on Inflation and the Saving Rate”, Brookings Papers on Economic Activity, 3: 765–78.
  • KANDİL, M. (2005). Money, interest, and prices: Some international evidence. International Review of Economics & Finance, 14(2), 129-147.
  • KLIEN, B. (1975). “Our New Monetary Standard: The Measurement and Effects of Price Uncertainty 1880-1973”, Economic Inquiry, 13: 461-484.
  • LEVI, M. D., & MAKIN, J. H. (1979). Fisher, Phillips, Friedman and the measured impact of inflation on interest. The Journal of Finance, 34(1), 35-52.
  • MEHRA, Y. P. (2006). Inflation Uncertainty and the Recent Low Level of the Long Bond Rate. Federal Reserve Bank of Richmond Economic Quarterly, 92(3), 225.
  • MISHKIN, F. S. (1981). The real interest rate: an empirical investigation. In Carnegie-Rochester Conference Series on Public Policy (Vol. 15, pp. 151-200). North-Holland.
  • MISHKIN, F.S. (1992). “Is the Fisher Effect for Real? A Re-Examination of the Relationship between Inflation and Interest Rates,” Journal of Monetary Economics, 30: 195-215.
  • NARAYAN, P.K. & POPP, S. (2010). “A New Unit Root Test with Two Structural Breaks in Level and Slope at Unknown Time”, Journal of Applied Statistics, 37:9, 1425-1438
  • SUMMERS, L.H. & WATSON, M.W. (1993). “The Non-Adjustment of Nominal Interest Rates: A Study of the Fisher Effect,” in: J. Tobin (ed.), A Symposium on Honour of Arthur Okun. Washington, DC: Brookings Institution.
  • TODA, H. Y., & YAMAMOTO, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1-2), 225-250.
  • WILCOX, J.A. (1983). “Why Real Interest Rates Were So Low In The 1970’s,” American Economic Review, 78: 44-53.

TÜRKİYE’DE ENFLASYON BELİRSİZLİĞİ İLE FAİZ ORANI ARASINDAKİ NEDENSELLİK İLIŞKİSİ: KAYAN PENCERE NEDENSELLİK TESTİ

Year 2018, Volume: 5 Issue: 3, 977 - 990, 27.12.2018
https://doi.org/10.30798/makuiibf.420613

Abstract

Bu çalışmanın amacı enflasyon
belirsizliğinin piyasa faiz oranı (benchmark) üzerindeki etkisini analiz
etmektir. Bu çerçevede ekonomide genel faiz düzeyini gösteren ve para piyasasında
karar birimlerinin tercihleri sonucunda oluşan iki yıllık devlet tahvilinin
faiz oranı temel değişken olarak alınmıştır. Enflasyon belirsizliği Tüketici
Fiyat Endeksi’nden (TÜFE) Friedman’ın yaklaşımına dayalı olarak GARCH yöntemi
kullanılarak koşullu varyanstan türetilmiş ve açıklayıcı değişken olarak
kullanılmıştır. Piyasa faiz oranının kullanılması, enflasyon ve enflasyon
belirsizliğine karşı piyasa karar birimlerinin davranışına ait bilgiyi içerdiğinden,
elde edilen bulgular politika önerisi açısından önem kazanmaktadır.



Bu çalışmada 2000M05-2016M11 dönemine ait veri seti kullanılarak
enflasyon belirsizliğinin piyasa faiz oranı üzerindeki etkisi Hill (2007)’nin
geliştirdiği
kayan pencere nedensellik yaklaşımına dayalı olarak incelenmiştir. Çalışmanın bulgularına göre 2005M04 ve 2006M05
dönemleri arasında enflasyon belirsizliğinden faiz oranlarına doğru nedensellik
ilişkisi söz konusudur. Diğer yandan, 2013M03 ve 2015M12
-2016M09 dönemlerinde faiz oranlarından
enflasyon belirsizliğine doğru nedensellik ilişkisi gözlemlenmiştir. 

References

  • BERUMENT, H., 1999, The Impact of Inflation Uncertainty on Interest Rates in the UK, Scottish Journal of Political Economy 46(20), 207-18.
  • BERUMENT, H. & JELASSI, M.M. (2002). The Fisher Hypothesis: A Multi-Country Analysis, Applied Economics. 34: 1645-1655.
  • BERUMENT, KILINÇ, H., Z. & ÖZLALE, U. (2005). The Missing Link between Inflation Uncertainty and Interest Rates, Scottish Journal of Political Economy. 52: 222-241.
  • BERUMENT, H., CEYLAN, N. B., & OLGUN, H. (2007). Inflation uncertainty and interest rates: is the Fisher relation universal? Applied Economics, 39(1), 53-68.
  • BLANCHARD, O. (2003). Monetary Policy and Unemployment. In Remarks at the Conference" Monetary Policy and the Labour Market: A Conference in Honor of James Tobin", New School University.
  • BOLLERSLEV, T. (1986). “Generalized Autoregressive Conditional Heteroscedasticity”, Journal of Econometrics, 31: 307-327.
  • BOMBERGER, W. A., & FRAZER, W. J. (1981). Interest rates, uncertainty and the Livingston data. The Journal of Finance, 36(3), 661-675.
  • BOUDOUKH, J. & RİCHARDSON, M. (1993). “Stock Returns and İnflation: A Long Horizon Perspective,” American Economic Review, 83: 1346-55.
  • BRENNER, M., & LANDSKRONER, Y. (1983). Inflation uncertainties and returns on bonds. Economica, 50(200), 463-468.
  • CEYLAN, N., B. (2006). Faiz Oranı ve Enflasyon Belirsizligi Iliskisi, Journal of Iktisat Isletme ve Finans, (240), 98.
  • CHAN, L. K.C. (1994). "Consumption, Inflation Risk, and Real Interest Rates: An Empirical Analysis", Journal of Business 67 (1): 69-96.
  • DOLADO, J. J., & LUTKEPOHL, H. (1996). Making Wald tests work for cointegrated VAR systems. Econometric Reviews, 15(4), 369-386.
  • FAMA, E. F. (1975). Short-term interest rates as predictors of inflation. The American Economic Review, 269-282.
  • FAMA, E. F., & SCHWERT, G. W. (1977). Asset returns and inflation. Journal of financial economics, 5(2), 115-146.
  • FAMA, E. F., & GıBBONS, M. R. (1982). Inflation, real returns and capital investment. Journal of Monetary Economics, 9(3), 297-323.
  • FRIEDMAN, M. (1977). “Nobel Lecture: Inflation and Unemployment,” Journal of Political Economy, 85: 451–72.
  • GREGORY, A.W., HANSEN, B. (1996). “Residual-Based Tests for Cointegration in Models with Regime Shifts”, Journal of Econometrics, 70: 99-126.
  • HAHN, F. H. (1970). “Savings and Uncertainty,” Review of Economic Studies, 37: 21–4.
  • HARTMAN, R., & MAKIN, J. H. (1982). “Inflation Uncertainty and Interest Rates: Theory and Empirical Tests.” NBER Working Paper 906.
  • HATEMI-J, (2008). “Tests for Cointegration with Two Unknown Regime Shifts with an Application to Financial Market Integration”, Empirical Economics, 35: 497-505.
  • HILL, J. B. (2007). “Efficient Tests of Long-Run Causation in Trivariate VAR Processes with a Rolling Window Study of the Money-Income Relationship”, Journal of Applied Econometrics, 22: 747–765.
  • JUSTER, F. T. & TAYLOR, D. (1975). “Towards a Theory of Saving Behavior”, American Economic Review, 65: 203–9.
  • JUSTER, F. T. & WACHTEL, P. (1972a). “Inflation and The Consumer”, Brookings Papers on Economic Activity, 1: 71–114.
  • JUSTER, F. T. & WACHTEL, P. (1972b). “A Note on Inflation and the Saving Rate”, Brookings Papers on Economic Activity, 3: 765–78.
  • KANDİL, M. (2005). Money, interest, and prices: Some international evidence. International Review of Economics & Finance, 14(2), 129-147.
  • KLIEN, B. (1975). “Our New Monetary Standard: The Measurement and Effects of Price Uncertainty 1880-1973”, Economic Inquiry, 13: 461-484.
  • LEVI, M. D., & MAKIN, J. H. (1979). Fisher, Phillips, Friedman and the measured impact of inflation on interest. The Journal of Finance, 34(1), 35-52.
  • MEHRA, Y. P. (2006). Inflation Uncertainty and the Recent Low Level of the Long Bond Rate. Federal Reserve Bank of Richmond Economic Quarterly, 92(3), 225.
  • MISHKIN, F. S. (1981). The real interest rate: an empirical investigation. In Carnegie-Rochester Conference Series on Public Policy (Vol. 15, pp. 151-200). North-Holland.
  • MISHKIN, F.S. (1992). “Is the Fisher Effect for Real? A Re-Examination of the Relationship between Inflation and Interest Rates,” Journal of Monetary Economics, 30: 195-215.
  • NARAYAN, P.K. & POPP, S. (2010). “A New Unit Root Test with Two Structural Breaks in Level and Slope at Unknown Time”, Journal of Applied Statistics, 37:9, 1425-1438
  • SUMMERS, L.H. & WATSON, M.W. (1993). “The Non-Adjustment of Nominal Interest Rates: A Study of the Fisher Effect,” in: J. Tobin (ed.), A Symposium on Honour of Arthur Okun. Washington, DC: Brookings Institution.
  • TODA, H. Y., & YAMAMOTO, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1-2), 225-250.
  • WILCOX, J.A. (1983). “Why Real Interest Rates Were So Low In The 1970’s,” American Economic Review, 78: 44-53.
There are 34 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Articles
Authors

Fatih Ceylan This is me 0000-0002-3685-2032

Osman Tüzün 0000-0002-4765-6985

Ramazan Ekinci 0000-0001-7420-9841

İşıl Erem Ceylan 0000-0001-6825-8495

Publication Date December 27, 2018
Submission Date May 3, 2018
Published in Issue Year 2018 Volume: 5 Issue: 3

Cite

APA Ceylan, F., Tüzün, O., Ekinci, R., Erem Ceylan, İ. (2018). THE CASUAL RELATIONSHIP BETWEEN INFLATION UNCERTAINTY AND INTEREST RATE IN TURKEY: ROLLING WINDOW CAUSALITY TEST. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 5(3), 977-990. https://doi.org/10.30798/makuiibf.420613