The Relationship between the Exchange Rate, Interest Rate and Inflation: The Case of Turkey

Ercan Özen; Letife Özdemir; Simon Grima

doi:10.47743/SAEB-2020-0014

The Relationship between the Exchange Rate, Interest Rate and Inflation: The Case of Turkey

Ercan Özen^*
, Letife Özdemir
, Simon Grima

^*Corresponding author for this work

Usak University
Afyon Kocatepe University
University of Malta

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

Abstract

The purpose of the study is to measure the effects of changes in exchange rates and interest rates on inflation and to determine which of the exchange rates or interest rates has a greater impact on inflation rate following the July 15, 2016 coup attempt in Turkey. Our expectation is that similar to most authors is to find that there is a long-term relationship between the inflation rates and both the exchange rate and interest rates and that the effect of the exchange rate on the Producer Price Index (PPI) is greater than that of the interest rates. Moreover, we expect to find a unidirectional causality relationship between the Interest Rate of Commercial Banks Credit (IRBC), Over Night Interest Rate (O/N) and United States Dollar (USD) and the PPI, but not between the IRBC, O/N, USD and the Consumer Price Index (CPI).

Original language	English
Pages (from-to)	259-275
Number of pages	17
Journal	Scientific Annals of Economics and Business
Volume	67
Issue number	2
DOIs	https://doi.org/10.47743/SAEB-2020-0014
Publication status	Published - 2020
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

Fisher Effect
Foreign Exchange
Inflation
Interest rate
Turkey

Access to Document

10.47743/SAEB-2020-0014

Cite this

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title = "The Relationship between the Exchange Rate, Interest Rate and Inflation: The Case of Turkey",

abstract = "The purpose of the study is to measure the effects of changes in exchange rates and interest rates on inflation and to determine which of the exchange rates or interest rates has a greater impact on inflation rate following the July 15, 2016 coup attempt in Turkey. Our expectation is that similar to most authors is to find that there is a long-term relationship between the inflation rates and both the exchange rate and interest rates and that the effect of the exchange rate on the Producer Price Index (PPI) is greater than that of the interest rates. Moreover, we expect to find a unidirectional causality relationship between the Interest Rate of Commercial Banks Credit (IRBC), Over Night Interest Rate (O/N) and United States Dollar (USD) and the PPI, but not between the IRBC, O/N, USD and the Consumer Price Index (CPI).",

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author = "Ercan {\"O}zen and Letife {\"O}zdemir and Simon Grima",

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T1 - The Relationship between the Exchange Rate, Interest Rate and Inflation

T2 - The Case of Turkey

AU - Özen, Ercan

AU - Özdemir, Letife

AU - Grima, Simon

N1 - Publisher Copyright: © 2020, This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

PY - 2020

Y1 - 2020

N2 - The purpose of the study is to measure the effects of changes in exchange rates and interest rates on inflation and to determine which of the exchange rates or interest rates has a greater impact on inflation rate following the July 15, 2016 coup attempt in Turkey. Our expectation is that similar to most authors is to find that there is a long-term relationship between the inflation rates and both the exchange rate and interest rates and that the effect of the exchange rate on the Producer Price Index (PPI) is greater than that of the interest rates. Moreover, we expect to find a unidirectional causality relationship between the Interest Rate of Commercial Banks Credit (IRBC), Over Night Interest Rate (O/N) and United States Dollar (USD) and the PPI, but not between the IRBC, O/N, USD and the Consumer Price Index (CPI).

AB - The purpose of the study is to measure the effects of changes in exchange rates and interest rates on inflation and to determine which of the exchange rates or interest rates has a greater impact on inflation rate following the July 15, 2016 coup attempt in Turkey. Our expectation is that similar to most authors is to find that there is a long-term relationship between the inflation rates and both the exchange rate and interest rates and that the effect of the exchange rate on the Producer Price Index (PPI) is greater than that of the interest rates. Moreover, we expect to find a unidirectional causality relationship between the Interest Rate of Commercial Banks Credit (IRBC), Over Night Interest Rate (O/N) and United States Dollar (USD) and the PPI, but not between the IRBC, O/N, USD and the Consumer Price Index (CPI).

KW - Fisher Effect

KW - Foreign Exchange

KW - Inflation

KW - Interest rate

KW - Turkey

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DO - 10.47743/SAEB-2020-0014

M3 - Article

AN - SCOPUS:85099521439

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VL - 67

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JO - Scientific Annals of Economics and Business

JF - Scientific Annals of Economics and Business

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ER -

The Relationship between the Exchange Rate, Interest Rate and Inflation: The Case of Turkey

Abstract

UN SDGs

Keywords

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