On the predictive power of the term structure of interest rates for future inflation changes in the presence of political instability: the Turkish economy

Telatar E., Telatar F., Ratti R.

JOURNAL OF POLICY MODELING, cilt.25, sa.9, ss.931-946, 2003 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 25 Sayı: 9
  • Basım Tarihi: 2003
  • Doi Numarası: 10.1016/j.jpolmod.2003.08.003
  • Dergi Adı: JOURNAL OF POLICY MODELING
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.931-946
  • Gazi Üniversitesi Adresli: Hayır

Özet

This study investigates whether the term structure contains useful information about future inflation for Turkey during 1990-2000, a period of high inflation, high budget deficits, and political instability. Constant parameter and time varying parameter models are rejected by the data. The relationship between term structure of interest rates and inflation changes is found to be explained by a time-varying-parameter model with Markov-switching heteroskedastic disturbances. Thus, the term structure of interest rates is limited as a guide for monetary policy in an economy subject to regime changes such as that of Turkey. Stability can be achieved only by reducing inflation through circumscribing substantial government budget deficits and the political instability underlying them. (C) 2003 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.