The impact of interest rate strategies implemented by the central bank of the republic of Türkiye on the liquidity risk within the banking sector: An exploration using a nonlinear boundary test method

Levent Sezal ()

Journal of Social Economics Research, 2024, vol. 11, issue 4, 435-445

Abstract: This study analyses the effects of changes in the CBRT's policy interest rate on the liquidity adequacy ratio of the Turkish banking sector. In order to determine the relationships between variables, Lee and Strazicich unit root tests, which also take into account structural breaks, are applied. Accordingly, the asymmetric effect of the policy interest rates of the Central Bank of the Republic of Türkiye on the Turkish banking sector liquidity adequacy ratio is analysed with the Nonlinear Lag Distributed Autoregressive Model (NARDL). The ‘Toda-Yamamoto’ method, in the form of binary analysis, tests the direction of causality to determine if there is a causal relationship between the variables. According to the NARDL test results, no cointegration relationship was found between the CBRT policy interest rates and the Turkish banking sector. Conversely, the results of the causality test reveal a unidirectional causal relationship between policy interest rates and the liquidity adequacy ratio. As a result, the management of liquidity-related risks by banks is critical for the continuity of the bank's operations. A change in the policy rate directly affects banks' funding and funding ratios through money market rates, which in turn affects the emergence of liquidity-related risks in the short and long term. Proper management of liquidity-related risks could potentially lead to bank liquidation.

Keywords: Central bank; Lee and Strazicich unit root tests; Liquidity adequacy ratio; Nonlinear border test approach; Policy rate; Turkish banking sector. (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://archive.conscientiabeam.com/index.php/35/article/view/4014/8384 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pkp:josere:v:11:y:2024:i:4:p:435-445:id:4014

Access Statistics for this article

More articles in Journal of Social Economics Research from Conscientia Beam
Bibliographic data for series maintained by Dim Michael ().