Causality analysis between interest and inflation rate in G20 countries

Many macroeconomic indicators are used, while the problems of the countries are expressed. As a matter of fact, the comparisons of the economic development between the countries are made by showing evidence and using them. The most important and most commonly used of these macroeconomic indicators are the inflation rate and interest rate. However, the fact that the inflation rate and interest rate variables are in correlation with each other and that they are considered duals by monetary policy executives clearly reveal the importance of these two variables. In addition, when the literature is examined the causality relationship between these two variables is also an important discussion in some countries, In this regard, the goal of this study is to examine the causality relationship between two variables. When the policy examples of inflation and interest rates are examined it is seen that countries shaped first of all countries based on the realization of targeted inflation. In particular, the global supply-based problems and high inflation rates that occurred on a global scale after the Covid-19 pandemia and the Ukraine-Russian War made countries to raise the policy interest rates of the countries. Even the European countries and the US, which discussed the negative interest rates before the Covid-19 pandemia, has increased to stage interest rates. In conclusion, the interest rates of countries have reached unprecedented levels in recent years. When the literature on the subject is examined, it is seen that inflation rates are generally determined by the interest rates in countries. However, it is seen that the interest rate in some countries is decisive on inflation or that there is a bidirectional causality between the two variables. In this perspective, it was aimed to analyze the causality relationship between inflation and interest rates in BRICS-T (Brazil, Russia, India, China, South Africa and Turkey), which is considered the pioneer of developing countries among G20 countries. In the study, monthly data in the range of 2010: 01-2022: 12 after the global financial crisis were used. Mutual causality relations were tested using time series and panel data causality methods. Based on the results obtained in case of causality tests on the subject (Emirmahmutoğlu-Köse and Toda-Yomamato Causality Tests), there is a one-way causality from inflation to inflation throughout the BIRCS-T countries. When countries are analyzed separately; In Turkey, the unidirectional relationship between inflation to interest rate has been determined. In Russia, the relationship mentioned is one-way, but here it is the variable interest rate that affects the other. However, in Brazil and China, there is a two -way causality relationship from inflation to interest rate, vice versa.