The Time - Varying Natural Rate of Interest and Its Fundamental Determinants: Time Series Evidence from Turkey

İlyas Şıklar, Umit Yildiz () and Sinan Cakan ()

Business and Economic Research, 2016, vol. 6, issue 2, 390-400

Abstract: In this study, by estimating the natural rate of interest, its relationship with key macroeconomic variables is analyzed using the time series data obtained from Turkey. As a first step, together with the natural rate of interest, the potential levels of output, prices and foreign exchange rate are estimated by using the Kalman Filter algorithm and then the related gap levels of each variable representing the deviations from their potentials are determined. As a second step of the study, the effects of output, price and exchange rate gaps on the interest rate gap are analyzed by using cointegration and error correction methodologies and the causality relationship among variables are examined. The main conclusion of the current study is that there is significant causality relationship between the interest rate gap, output, price and exchange rate gaps.

Keywords: Natural Rate of Interest; Kalman Filter; Error Correction Model (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mth:ber888:v:6:y:2016:i:2:p:390-400

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