Determinants of the short-run ınterest rate in Turkey: A taylor rule approach

This study is investigated the determinants of the short run interest rate and validity of the Taylor Rule, using Two-Stage Least Squares (TSLS), Method of the Generalizied Moments (GMM) and Relative Sensitivity Analyses (RSA) for 2002-2016 periods in Turkey. Results of the TSLS and GMM analyses are show that there are positive relationship between the interest rate, capacity utilization rate, exchange rate and inflation gap. According to the RSA results, there are stronger relationships between short run interest rate, capacity utilization rate and exchange rate than output gap. In this context, these two variables which are capacity utulization rate and exchange rate, can be effective indicators for predict to the short run interest rates in Turkey. Beside, according to TSLS and GMM results, interest rate smoothing parameter is meaningful and positive effect on the nominal interest rate. This result indicates that a sudden change in the short run interest rate was not made by the CBRT in this period.