The impact of interest on national income: Case of Turkey

In Turkish economy, the interaction of interest with macroeconomic factors has only been associated with borrowing in the closed economy period. However, the fact that the open economy model dominates the market has made interest an important market element in terms of both exchange rate and deposits and other financial market instruments. The interaction of the interest rate with the foreign exchange rate has led the countries to increase the foreign exchange reserves by keeping the interest rates high. This has led to an increase in liquidity movements. The interest instrument, which is used to control the market, has become a factor to be controlled depending on the movements of the hot money. In this study, necessary definitions related to interest and national income were given, and the approaches of different economic views to interest were discussed. In study, the development process of the interest in Turkish economy has been examined. Two different models have been developed using 2002: 01-2016: 09 data of interest rates on consumption and deposit credits. Stationarity was investigated by KPSS, PP and ADF tests and it was obtained in the first differences of the series. As a result of Engel-Granger cointegration test, it was concluded that the variables in the models were cointegrated and the short-term error correction mechanism was observed to operate. Causality relationship between interest and national income was examined by Granger causality test. In the conclusion part, policy suggestions were made in line with the way of interaction. At the end of econometric analysis, it is determined that national income affects interest rates in both models.