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Currency and yield co-integration between a developed and an emerging country: The case of Turkey

İnci, Ahmet Can (2007) Currency and yield co-integration between a developed and an emerging country: The case of Turkey. Bogazici Journal: Review of Social, Economic and Administrative Studies, 21 (1-2). pp. 1-20. ISSN 1300-9583

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Abstract

The relationship between currencies and interest rates of different maturities is examined in the Turkish-US context. The real exchange rate between the new Turkish lira (YTL) and the US dollar is found to depend on both short- and long-term real US-Turkish interest rate differences. Cointegrating regressions generate negative and significant coefficients for long- rate differential, consistent with uncovered interest parity and the expectations hypothesis. On the other hand, positive coefficients for real short-term rate differential reveal the forward premium puzzle and the failure of uncovered interest parity for short-horizons. Results are partly driven by the very different risk characteristics of short-term US bonds and the Turkish currency.

Item Type:Article
Uncontrolled Keywords:Exchange Rates, Interest Rates, Uncovered Interest Parity, Forward Premium Puzzle
Subjects:H Social Sciences > HG Finance
H Social Sciences > HA Statistics
ID Code:11299
Deposited By:Ahmet Can İnci
Deposited On:28 Jan 2009 10:31
Last Modified:28 Jan 2009 10:31

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