Rethinking interest rate volatility as a macroprudential policy tool

Creative Commons License

Dogan B., ŞAHİN A., BERUMENT M. H.

MIDDLE EAST DEVELOPMENT JOURNAL, cilt.8, sa.1, ss.109-126, 2016 (ESCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 8 Sayı: 1
  • Basım Tarihi: 2016
  • Doi Numarası: 10.1080/17938120.2016.1150009
  • Dergi Adı: MIDDLE EAST DEVELOPMENT JOURNAL
  • Derginin Tarandığı İndeksler: Emerging Sources Citation Index (ESCI), Scopus
  • Sayfa Sayıları: ss.109-126
  • Anahtar Kelimeler: economics, monetary policy, interest rate volatility, macroprudential policies, MONETARY-POLICY, CREDIT, RETURN
  • Ankara Hacı Bayram Veli Üniversitesi Adresli: Hayır

Özet

Along with most other central banks, Turkey's central bank has implemented unconventional policies since the 2007/2008 financial crisis. Financial stability has been one of the targets of these macroprudential policies. However, since Turkey is working toward this goal without increasing its inflation rate, tracking only short-term interest rates to measure this policy's effectiveness would be inefficient. In this paper, we provide empirical evidence from Turkey that interbank interest rate volatility can be an additional tool for monetary policy makers to help achieve the goal of financial stability. Impulse responses generated from the Vector Autoregressive models indicate that interest rate volatility increases interest rates, depreciates domestic currency and decreases credit growth and output. Its statistically insignificant effect on prices is open to interpretation.