The relationship between short-term capital movements and interest rates : The case of Turkey

In this study, the relationship between interest rates and short-term capital flows to Turkey between 1991:4-2018:4 quarter data periods were examined in the framework of empirical analysis. The interest rates used in the study were determined as Central Bank policy rate, deposit rate and discount rate. The cointegration relationship between these variables was tested by using bound test and the short and long term relationships between the variables were tested with Autoregressive Distributed Lag (ARDL) model. The direction of causality between variables was determined by Toda-Yamamoto causality analysis. In the last part of the analysis, the dynamic interactions between the variables were investigated with the help of the impulse-response functions. According to the results of the analyzes, the cointegration relationship between short-term capital movements and interest rates was determined. In the framework of the (ARDL) model, it was determined that all interest rate variables used in the study had a statistically significant and positive effect on short-term capital movements in the short run. Among the interest rates variables, only Central Bank policy rate affects the short-term capital movements in the long run statistically significantly and positively. As a result of the Toda-Yamamoto causality analysis, the existence of a one-way causality relationship from all interest rates to short-term capital movements was determined. As a result of the impulse-response analysis, short-term capital movements react significantly and positively in the second period in response to the shock waves experienced in all interest rates.