Effects of monetary policy on banking interest rates: interest rate pass-through in Turkey

Sağır, Serhat
In this study, the effects of CBRT monetary policy decisions on the consumer, automobile, housing and commercial loans of the banks during the period from the early of 2004 to the middle of 2011 are examined. In order to perform this study, it is benefited from weekly weighted average loan interest rate data of the banks, which is the data having the highest frequency that could be obtained from the electronic data distribution system of CBRT. Monetary policy instruments of Central Bank may change in the course of time or monetary policy could be executed by more than one instrument. Therefore, as the political interest rate would be insufficient in the calculation of the effect of monetary policy on loan interest rates of the banks, Government Dept Securities’ premiums are used instead of the political interest rates in this study to make it reflect the policies of central bank more clearly as a whole. Among the Government Dept Securities that have different maturity structure, benchmark bonds that are adapted to the expected political interest rate changes and that react to the unexpected interest rate changes at the high rate (reaction coefficient 0.983) are used. In order to weight the cointegration relation between interest rates, unrestricted error correction model is established and it is determined by Bound Test that there is a long-term relation between each interest rate and interest rate of benchmark bond. After a cointegration relation is determined among the serials, autoregressive distributed lag model is used to determine the level of transitivity and it is determined that monetary policy decisions affect the banking interest rate at 77% level and by 13 weeks delay on average.


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Citation Formats
S. Sağır, “Effects of monetary policy on banking interest rates: interest rate pass-through in Turkey,” M.S. - Master of Science, Middle East Technical University, 2011.