Perspectives on High Real Interest Rates in Turkey

Prakash Kannan

No 2008/251, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; risk premium; inflation rate; forward rate (search for similar items in EconPapers)
Pages: 31
Date: 2008-10-01
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Citations: View citations in EconPapers (6)

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