The Term Structure of Interest Rate as a Predictor of Inflation and Real Economic Activity: Nonlinear Evidence from Turkey

Omay, Tolga (2008): The Term Structure of Interest Rate as a Predictor of Inflation and Real Economic Activity: Nonlinear Evidence from Turkey. Forthcoming in:

Abstract

This study investigates whether the term structure of interest rates contains useful information about future real economic activity and inflation in Turkey during the 1991:7-2004:3 periods. In order to analyze these relationships, we have employed the Generalized Impulse Response (GIRF) analysis to the Logistic Smooth Transition Vector Autoregressive (LSTVAR) model. We have determined that the results of a GIRF analysis are consistent with the recursive Chow test and parameter stability tests. Besides, we have found out that the relationships between spread-real economic activity and spread-inflation are negative. These negative relationships have also been examined by GIRF analysis; because of a negative reverse relationship between Expectation Hypothesis and Interest Transmission Channel, a negative correlation between real economic activity and spread has occurred.

• Item Type: MPRA Paper
• Language: English
• Keywords: Term Structure of Interest Rates; Monetary Policy; LSTVAR; GIRF; Real Economic Activity; Inflation
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications

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