Prague Economic Papers 2023, 32(2):184-204 | DOI: 10.18267/j.pep.826

Interest Rate Uncertainty and Macroeconomics in Turkey

Pelin Öge Güney ORCID...^a

^a Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey

Uncertainty about monetary policy associated with uncertainty in interest rate is an important determinant of economic decisions. Due to the dominant position of the US economy on global financial markets, in addition to countries' own uncertainties, uncertainty related to the monetary policy of the USA may have an impact on other economies. In this study, we investigated the impact of interest rate uncertainties for different maturities on industrial production, inflation, unemployment and exchange rate. We used the impulse response functions based on the vector error correction model (VECM). We also conducted the Granger causality test to analyse the causality. We examined the impact of US monetary policy uncertainty on the mentioned variables of Turkey. Our findings suggest that uncertainty in long-term interest rates increases unemployment and inflation rates. Although we find that uncertainty in interest rate reduces growth of industrial production, we do not find a causal relationship between these variables. Finally, we show that a shock related to US monetary policy uncertainty tends to increase unemployment significantly, while reducing the growth of production.

Keywords: uncertainty, interest rate, VAR model, macroeconomics

JEL classification: E43, E52, E58

Received: April 22, 2022; Revised: February 8, 2023; Accepted: February 10, 2023; Published: April 26, 2023  Show citation