Interest Rate Uncertainty and Macroeconomics in Turkey

Pelin Öge Güney ()
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Pelin Öge Güney: Hacettepe University

No 1558, Working Papers from Economic Research Forum

Abstract: Monetary policy plays a central role in stabilizing macroeconomic fluctuations. In addition to monetary policy, uncertainty in monetary policy associated with uncertainty in interest rates is an important determinant of economic decisions. In this paper, we analyze the effect of interest rate uncertainties for different maturities on industrial production, inflation, unemployment, and exchange rate for Turkey using the VAR model. Since the dominant position of the US economy in global financial markets implies uncertainty about how the monetary policy of the US (MPU) may impact foreign economies, we also discuss the impact of MPU uncertainty on the variables of interest. Although the effect varies across the different maturities of the yield, our findings suggest that interest rate uncertainty reduces the growth of industrial production, increases unemployment, and depreciates the exchange rate. Additionally, inflation increases in response to interest rate uncertainty shocks. Finally, while a shock in MPU uncertainty tends to significantly increase unemployment, it decreases the growth of production.

Pages: 20
Date: 2022-08-20, Revised 2022-08-20
New Economics Papers: this item is included in nep-ara, nep-cba, nep-fdg, nep-mon and nep-opm
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