Perspectives on High Real Interest Rates in Turkey

Author/Editor:

Prakash Kannan

Publication Date:

October 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The Turkish economy is typically characterized as having particularly high real interest rates. Fundamental considerations, such as high growth rates or high returns to capital, do not provide a satisfactory resolution of this puzzle. Instead, we find that two other factors- doubts about the sustainability of disinflation and the existence of a risk premium-have a significant impact on the level of real interest rates in Turkey. Importantly, fiscal policy variables are shown to affect both these factors, suggesting that a more credible and prudent fiscal policy can help reduce real interest rates in Turkey.

Series:

Working Paper No. 08/251

Subject:

English

Publication Date:

October 1, 2008

ISBN/ISSN:

9781451871098/1018-5941

Stock No:

WPIEA2008251

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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