Analysis of the Effect of Interest Rate Corridor Strategy on Common Stock and Exchange Rate

Metin Tetik () and Reşat Ceylan ()
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Reşat Ceylan: Pamukkale University

Business and Economics Research Journal, 2015, vol. 6, issue 4, 55-69

Abstract: This study is found to find out how interest rate corridor strategy, which is new policy tool implemented by Central Bank of Turkey in 2011, affects financial investment tools, common stocks and Exchange rates. The study separates the time into two periods, the period before interest rate corridor strategy and the period after implementation of interest rate corridor strategy. The effects of the changes in policy interest rate on the common stocks and exchange rate are examined in the framework of structural vector auto regression (SVAR) model. The most important finding is that the effect of a change in policy interest rate on common stocks and exchange rate becomes more permanent after interest rate corridor strategy. Another finding is that short term capital flows with speculative move is deterred from after this strategy. Findings are in coincidence with the results of increase in interest rate volatility as Başçı and Kara (2011) suggests.

Keywords: Monetary policy; interest rate corridor; common stock; exchange rate; structural vector auto regression model (search for similar items in EconPapers)
JEL-codes: E58 G12 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0203

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