IMF Working Papers

Perspectives on High Real Interest Rates in Turkey

By Prakash Kannan

October 1, 2008

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Prakash Kannan. Perspectives on High Real Interest Rates in Turkey, (USA: International Monetary Fund, 2008) accessed October 10, 2024
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.

Subject: Exchange rate risk, Inflation, Interest rate parity, Real interest rates, Return on investment

Keywords: Forward rate, Inflation rate, Risk premium, WP

Publication Details

  • Pages:

    31

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2008/251

  • Stock No:

    WPIEA2008251

  • ISBN:

    9781451871098

  • ISSN:

    1018-5941