Relationship between nominal interest rates and inflation: The case of Türkiye

This study examines the complex relationship between nominal interest rates and inflation, with a specific focus on Türkiye as a case study. As in every economy, the concept of interest plays a critical role in the Türkiye economy and offers a unique opportunity to investigate this relationship and its broader implications. The study explores the theoretical foundations of the Fisher Effect, which posits a direct relationship between nominal interest rates and expected inflation, and emphasizes its applicability to the Türkiye economy. The findings generally indicate that the Fisher Effect holds partially true; however, the relationship is significantly influenced not only by inflationary pressures but also by other external economic factors that shape Türkiye's monetary policy decisions. Overall, this research provides valuable insights into how nominal interest rates are determined in a developing market economy like Türkiye and highlights the importance of effective monetary policy in maintaining economic stability. Moreover, it contributes to the broader literature on interest rate dynamics in emerging economies by offering policy recommendations that underline the need for transparent and consistent monetary strategies to manage inflation expectations and stabilize interest rates.