Evaluation of the Long-Term Relationship Between Inflation and Loan Interest Rates in the Framework of the Fisher Hypothesis: Turkey Application (2002-2018)Hakan Telçeken, Süleyman Değirmen
In this study, the relationship between inflation and interest rates for Turkey’s economy and whether this is a long-term relationship were tested out using the Fisher hypothesis for the period of 2002:M1-2018:M6. In the study, it was tested if there is a long-term relationship from demand-pull inflation toward Individual Loan Rates, and from cost-push-tosupply inflation toward Commercial Loan Rates using Fisher’s hypothesis. Subsequently, structural break unit root test was performed in order to determine if there is structural breakage in the economy. According to Granger causality test results for the period, there was a unidirectional causality for Turkey’s economy from both the Consumer Price Index to the Individual Loan Interest rates and from the Producer Price Index to Commercial Loan Interest rates. In addition, the results of the ARDL bound test for cointegration showed that, there is no long-term cointegrated relationship from CPI to Individual Loan Rates, while a long-term cointegrated relationship is seen from PPI toward Commercial Loan Rates. Therefore, this long-term relationship is not one-to-one as stated by Irving Fisher, and implies that a 1% shock to PPI affects the Commercial Loan Rates by 0.45% in the long term.
Enflasyon ve Kredi Faizleri Arasındaki Uzun Dönemli İlişkinin Fisher Hipotezi Çerçevesinde Değerlendirilmesi: Türkiye Uygulaması (2002-2018)Hakan Telçeken, Süleyman Değirmen
Bu çalışmada, Türkiye ekonomisi için enflasyon ve faiz oranları arasındaki ilişki ve bu ilişkinin uzun dönemli olup olmadığı incelenmiş ve bu bağlamda Fisher Hipotezinden yararlanılmıştır. Makalenin çalışılan dönemi 2002:M1-2018:M6 dönemini kapsamaktadır. Çalışmada, talep çekişli enflasyondan Bireysel Kredi Faizlerine ve maliyet itişli-arz yanlı enflasyondan Ticari Kredi Faizlerine doğru uzun dönemli bir ilişki olup olmadığı Fisher hipotezi kullanılarak test edilmiştir. Çalışmada, Granger Nedensellik analizi yapılmış ve hem Tüketici Fiyatları Endeksinden Bireysel Kredi Faizlerine doğru hem de Üretici Fiyatları Endeksinden Ticari Kredi Faizlerine doğru tek yönlü nedensellik olduğu sonucuna ulaşılmıştır. Daha sonra ise ekonomide yapısal kırılmalar dikkate alınarak yapısal kırılmalı birim kök testi yapılmıştır. Sonuç olarak, incelen dönemde Türkiye ekonomisi için nedensellik testi bağlamında, hem TÜFE’den Bireysel Kredi Faizlerine hem de ÜFE’den Ticari Kredi Faizlerine doğru tek yönlü bir nedensellik olduğu bulgusuna ulaşılmıştır. Ayrıca, yapılan ARDL sınır koentegrasyon testi sonucunda, TÜFE’den Bireysel Kredi Faizlerine doğru uzun dönemli eşbütünleşik bir ilişki bulunamazken, ÜFE’den Ticari Kredi Faizlerine doğru uzun dönemli eşbütünleşik bir ilişki olduğu bulgusuna ulaşılmıştır. Ayrıca, ÜFE’den Ticari Kredi Faizlerine doğru uzun dönemli olarak ortaya çıkan bu ilişkinin, Irving Fisher’in belirttiği gibi bire bir olmadığı ve ÜFE’ye gelen % 1’lik bir şokun uzun dönemde Ticari Kredi Faizlerini % 0.45 oranında etkilediği sonucuna ulaşılmıştır.
In this study, the relationship between inflation and interest rates for Turkey’s economy and whether this is a long-term relationship were tested out using the Fisher hypothesis for the period of 2002:M1-2018:M6. In the study, it was tested if there is a long-term relationship from demand-pull inflation toward Individual Loan Rates (ILRs), and from cost-push-to-supply inflation toward Commercial Loan Rates (CLRs) using Fisher’s hypothesis. Subsequently, Perron (1997) structural break unit root test was performed in order to determine if there is structural breakage in the economy. According to Granger Causality test results for the period, there was a unidirectional causality for Turkey’s economy from both the Consumer Price Index (CPI) to the ILRs and from the Producer Price Index (PPI) to CLRs. In addition, the results of the ARDL bound test for co-integration showed that, there is no long-term cointegrated relationship from CPI to ILRs, while a long-term cointegrated relationship is seen from PPI toward CLRs. Therefore, this long-term relationship is not one-to-one as stated by Irving Fisher, and implies that a 1% shock to PPI affects the CLRs by 0.45% in the long term. On account of the fact that Turkey’s economy has not been able to reach its full employment level, the pass-through effect from CPI, -which measures demand-pull inflation-, toward ILRs, was not cointegrated in the long-term and thus, the Fisher effect did not occur even in the longterm. Hence, Turkey’s economy in the long-term was in conditions of underemployment, and changes in monetary variables influenced real variables due to unexpected fluctuations in the CPI. Due to the nominal interest rates being adjusted according to the expected (or, ex-ante) CPI, the real interest rates fluctuated due to the fact that the CPI was realized outside of the range of the end-of-term (or, ex-post) expectations. The reason behind the CPI being realized outside of expectations in these periods was due to the fact that this index did not reflect a pure demand inflation and was under the effect of PPI series. The pass-through effect from CPI towards PPI, -which occurs depending on external shocks such as foreign exchange rates, oil prices, and food prices-, causes the deterioration of the long-term equilibrium between the CPI and nominal interest rates and thus, this leads a reflection in real interest rates. Therefore, this result indicates that monetary variables affects real variables and in this context, the Central Bank’s monetary policies may affect real variables such as real interest rates, real wages, investments, savings and employment. It is concluded that there is a cointegrated relationship along with long-term positive direction from supply side-cost push inflation toward nominal interest rates and a 1% shock to supply-side inflation reflects itself in nominal interest rates by 0.45% in the longterm. Considering the economic structure of our country, the Turkish Lira currency has an extremely fragile structure when faced with external shocks and is dependent on foreign financing because of its lack of sufficient level of domestic saving to finance its invesments. Thus, the fagility factor of the Turkish Lira in the face of sudden portfolio outflows affects foreign exchange rates immediately and this means that it invites supply-side inflation to the country, and hence, the Central Bank is forced to raise interest rates to curb this expected inflation. This leads to the emergence of the Fisher effect. According to these results, in this context of the emergence of the Fisher effect on Turkey’s economy, it usually indicates that supply-side (cost-push) inflationist effects reveal themselves because external shocks are more prepotent. Consequently, while determining interest rates, it is noted that supply-side pricing will be more effective than demand-side pricing. In conclusion, taking into account PPI will be more rational. In conclusion, the production structure of Turkey’s economy is dependent on imports. In fact, Turkey’s economy for the period was composed on average of 70 % import of intermediate goods and raw materials, and 15-20 % import of invesment goods. That is to say, 85-90 % of the aggregate imports comprised input (production goods). This situation makes our country’s economy highly dependent on foreign financing and increases the Turkish economy’s sensivity to foreign currency due to the lack of a sufficient level of domestic saving to finance its invesments because of the currency mismatch (borrowing with foreign currency and earning with national currency). Therefore, the Turkish Lira becomes extremely fragile against international reserve monies ( $, €, ₤). This fragility of the Turkish Lira can be managed with policies on structural adjustment along with conjunctural policies (monetary policy, fiscal policy, and foreign exchange policy). Domestic production should be promoted by structural reforms and herewith, the Turkish economy can achieve a comparative advantage of input manufacturing in the long-term. Therefore, by reducing the high dependency on foreign financing it can also reduce the fragility of the Turkish Lira. Consequently, the Turkish economy can achieve a stable structure so that foreign exchange rates, the overall price level and interest rates can reach a more stable and predictable level.