Perspectives on High Real Interest Rates in Turkey
IMF Working Papers, October 1, 2008
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- Perspectives on High Real Interest Rates in Turkey
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Bibliographic details
- Authors: Prakash Kannan
- Published: October 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871098.001
Key findings and puzzle
- 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.
Main explanatory factors
- Doubts about the sustainability of disinflation have a significant impact on the level of real interest rates in Turkey.
- The existence of a risk premium also has a significant impact on the level of real interest rates in Turkey.
- Fiscal policy variables are shown to affect both doubts about disinflation sustainability and the risk premium.
Policy implications and recommendations
- A more credible and prudent fiscal policy can help reduce real interest rates in Turkey.
Subjects and keywords
- Subject: Exchange rate risk, Inflation, Interest rate parity, Real interest rates, Return on investment
- Keywords: forward rate, inflation rate, risk premium, WP