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Threshold Effect of Inflation on the Relationship between Stock Market Index and Interest Rate

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  • Kenan İlarslan

Abstract

This research examines how the deposit interest rate impacts Turkey’s stock market index and the inflation rate from January 2003 to June 2024. The empirical findings derived from the analyses conducted under the threshold regression model indicate that the inflation rate has a single threshold impact on the connection among the stock market index and the interest rate. Thus, when inflation rates are at 2.67% or lower, rising bank deposit interest rates negatively impact the stock market index. Nevertheless, when inflation rates exceed 2.67%, the rise in bank deposit interest rates positively influences the stock market index. As a result, empirical evidence indicates that deposit interest rates have a nonlinear effect on the stock market index in Turkey, which is influenced by the level of inflation. These findings suggest policy implications for investors concerning the impact of the inflation rate on the connection among stock market indices and deposit rates.

Suggested Citation

  • Kenan İlarslan, 2025. "Threshold Effect of Inflation on the Relationship between Stock Market Index and Interest Rate," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 9(4), pages 779-795.
    • Handle: RePEc:ahs:journl:v:9:y:2025:i:4:p:779-795
    DOI: https://doi.org/10.30784/epfad.1581213
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    References listed on IDEAS

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    1. Charles K.D. Adjasi, 2009. "Macroeconomic uncertainty and conditional stock‐price volatility in frontier African markets," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 10(4), pages 333-349, August.
    2. Johnson Worlanyo Ahiadorme & Emmanuel Sonyo & Godwin Ahiase, 2019. "Time Series Analysis of Interest Rates Volatility and Stock Returns in Ghana," Emerging Economy Studies, International Management Institute, vol. 5(2), pages 89-102, November.
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      More about this item

      Keywords

      Stock Market Index; Inflation; Interest Rate; Threshold Regression;
      All these keywords.

      JEL classification:

      • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
      • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
      • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
      • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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